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Top 5 Things to Know in the Market on Monday, June 1st

EconomyJun 01, 2020 06:24AM ET
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By Peter Nurse  

Investing.com -- America is on edge as protests against police brutality, some turning violent, continue throughout the nation, while tensions between China and the U.S. continue to escalate. The oil industry is also in focus with OPEC potentially meeting early to discuss further output cuts. And there's the May U.S. ISM manufacturing PMI data to study. Here's what you need to know in financial markets on Monday, 1st June.

1. U.S. on edge; protests turn violent

What started as a peaceful demonstration against police killings of black people after the death of George Floyd as he was restrained by Minneapolis police officers has turned into violent protests that have ravaged cities from Philadelphia to Los Angeles and flared near the White House.

Pressure is mounting on President Donald Trump, as he faces accusations of inciting racial violence as he appeared to call on his supporters to counter-protest outside the White House. He has also said the U.S. will designate the far-left Antifa group a 'terrorist organisation'.

The turmoil was a fresh setback for the economy which was only just emerging from a downturn akin to the Great Depression. Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51% annualised in the second quarter.

2. Trump pulls back from the edge with China, for now

Financial markets tuned in nervously to President Trump’s response Friday to China’s decision to impose a national security law on Hong Kong. In the end, the president said he would strip Hong Kong of its special status with the U.S., but didn’t renounce the recently signed trade deal with China, as the market had feared.

Still, relations between the two economic superpowers are particularly tense, and such a move can’t be ruled out in the future, especially as the U.S. presidential election draws nearer.

Bloomberg reported Monday that Chinese government officials have told major state-run agricultural firms to pause purchases of some American farm goods, including soybeans, as Beijing looks to evaluate the recent escalation in tensions between the two nations.

“If Trump wants to increase his chances of beating Biden in November, then he needs to turn even tougher than China than he currently is,” said analysts at Nordea, in a research note.

3. Stocks set to open lower; Goldman turns more positive

U.S. stock markets are set to open a little lower, after posting a positive month in May. Continuing disturbances throughout the country on top of heightened tensions with China will likely weigh on the market ahead of the release of ISM manufacturing PMI data. 

By 6:30 AM ET (1030 GMT), the Dow Jones 30 futures contract was down 26 points or 0.1%, while the S&P 500 futures contract was down 0.2% and the Nasdaq 100 futures contract was down 0.4%.

Still, on a more positive note, Goldman Sachs has abandoned its call for another steep sell-off.

The investment bank has rolled back its prediction that the S&P 500 would slump to the 2,400 level -- over 20% below Friday’s 3,044 close -- and now see downside risks capped at 2,750. The U.S. equity benchmark could even rally further to 3,200.

“The powerful rebound means our previous three-month target of 2,400 is unlikely to be realized,” the strategists wrote. “Monetary and fiscal policy support limit likely downside to roughly 10%. Investor positioning has oscillated between neutral and low and is a possible 5% upside catalyst.”

In Asia, the benchmark Nikkei index gained 0.8%. In Europe, with Germany closed for a June 1 public holiday, the FTSE 100 in London and the CAC 40 in Paris both rose 1%.

4. ISM Manufacturing PMI on the data slate

This week will see little of Federal Reserve officials as they are now in the traditional blackout period ahead of their next policy meeting later this month, but there will be plenty of economic data to study.

Friday sees the important nonfarm payrolls release, but ahead of that comes ISM Manufacturing Purchasing Managers Index for May, at 10 AM ET. 

This is expected to show an improvement in sentiment in the manufacturing sector, with the index expected to climb to 43.0 from 41.5 in April, as parts of the U.S. economy started to emerge from the lockdown.

However, an improvement isn’t a given. Nordea said, in a research note, that it wouldn’t be a surprise to see an even weaker reading in May, citing a disappointing Weekly Economic Index release from the New York Fed as well as the April index having not dropped as much as had been expected.

The news from Europe wasn't particularly encouraging, as although manufacturers in the euro zone appear to have passed their nadir, activity is still contracting sharply.

5. OPEC meeting this week?

Oil prices have been on the tear of late, with the front-month Brent and WTI contracts posting their strongest monthly gains in years in May as crude production by the Organization of Petroleum Exporting Countries and its allies, a grouping known as OPEC+, dropped to its lowest level in two decades.

To solidify this change in sentiment, Algeria, which currently holds the OPEC presidency, has proposed that an OPEC+ meeting planned for June 9-10 be brought forward to this Thursday.

One of the topics of discussion will likely be an extension of the current cuts of 9.7 million barrels a day for between one to two months. Under the current deal, the group is scheduled to reduce the scale of cuts to 7.7 million barrels a day from July. 

“A shorter period may make an extension more palatable to the Russians, who were not keen to extend current cuts through until the end of this year, which was reportedly suggested by other members of the deal,” said ING, in a research note to clients.

 

 

Top 5 Things to Know in the Market on Monday, June 1st
 

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Comments (9)
Dee Mehta
DMFINANCE Jun 01, 2020 4:14PM ET
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Ahs of epic proportions so no vaccine rumor then reopenig. Optimism great
Pirama Kandaswamy
Pirama Kandaswamy Jun 01, 2020 4:14PM ET
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Yeah, go with the market as Goldman Saks predicts
Dee Mehta
DMFINANCE Jun 01, 2020 12:45PM ET
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This thief in pic shown again as a bull. Wallstreet looting retail investors
Hassan Biba
Hassan Biba Jun 01, 2020 11:38AM ET
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Goodbuy Trump❌Hello Bayden
Dietmar Stahl
Dietmar Stahl Jun 01, 2020 9:29AM ET
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Regular unemployment will move millions out of their apartment into the streets.US starts to deteriorating.
Enrique de Simon
Enrique de Simon Jun 01, 2020 8:16AM ET
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There are more than 1,300 American companies with business operations in Hong Kong, including nearly every major U.S. financial firm. The State Department said 85,000 U.S. citizens lived in Hong Kong in 2019. So who is going to loose, with the trump new actions?
Barani Krishnan
Barani Krishnan Jun 01, 2020 8:01AM ET
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Wall Street again seems to be in denial mode over the potential impact of the US protests and China retaliation to Trump, as it were during the pre-Covid crash days. Admittedly, the violence across U.S. cities appear transitory and the Sino-U.S. tensions may just prolong without longer-term damage. Yet, the market seems determined in ignoring both due to the obstinacy of the bulls. My 2 cts tells me that's just ridiculous.
Sean Livingstone
Sean Livingstone Jun 01, 2020 8:01AM ET
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Too many bears to have done meaningful down... We could go much higher.
Get Sirius
Get Sirius Jun 01, 2020 8:01AM ET
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Sean Livingstone I more prefer bull sentimen because of feeling that everything will be ok and I mean everything in real life. That is better than find out real situation and be in depresion. Only thing I scared is that protests are bears and they are sick of sentiment, they just want truth. I don’t know but I know that truth is ugly. Stock is to to to high even if You look 6month in future it is still 10k pts. high
Matt Kay
Matt Kay Jun 01, 2020 6:51AM ET
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Market is now socialized. Stonks only go up.
Mulenga Lawrence
Mulenga Lawrence Jun 01, 2020 6:51AM ET
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we expect more from the US this week
Ted Dirty
DirtyTed Jun 01, 2020 6:44AM ET
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Tension with China?...what tension?...this is relax...US officially admitted that Hong Kong belongs entirely to China...so where is the tension?
Aravind Tallam
LiveKingSize Jun 01, 2020 6:44AM ET
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removing special status will hurt the trade and financial benefits of Hong Kong and indirectly China as well....If it doesn't China why do you think they are warning of retaliation
Aravind Tallam
LiveKingSize Jun 01, 2020 6:44AM ET
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Erski Gumby  Trump might not do that as it will crash stock market and it might be bad for his re-election....he already have Corona virus mishandling, riots on his plate
Hunt Richardson
Hunt Richardson Jun 01, 2020 6:44AM ET
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Trump throws Hong Kong under the bus
 
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