(Bloomberg) — Treasuries climbed as a weak manufacturing reading fueled speculation the Federal Reserve will have room to cut interest rates this year.
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Bonds kicked off the busy week for economic data with gains after a report showed US factory activity shrank at a faster pace as output came close to stagnating and a measure of orders tumbled. Stocks struggled as energy companies joined a plunge in oil. An apparent glitch at the operator of the New York Stock Exchange triggered volatility trading halts shortly after the open in about a dozen companies. NYSE said a technical issue with industrywide price bands published has been resolved.
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“The Manufacturing ISM data reaffirmed several prevailing economic trends: decelerating inflation, slowing growth, and a tight labor market,” said Gary Pzegeo at CIBC Private Wealth US. “We should see higher odds of a rate cut later this year priced into interest rate futures.”
US 10-year yields declined nine basis points to 4.41%. The S&P 500 hovered near 5,270. Oil producers tumbled as Brent oil sank below $80 for the first time since February. The tech-heavy Nasdaq 100 outperformed as Nvidia Corp. and Advanced Micro Devices Inc.’s chiefs showcased new generations of the chips powering the global boom in AI development.
“While the manufacturing ISM already registered an unexpected drop in May, we are of the view that the services ISM will be more relevant for the economic outlook,” said Oscar Munoz at TD Securities. “The employment component in particular will garner the focus of our attention.”
In fact, traders will also be focused on a slew of labor-market readings this week, including Friday’s jobs report.
That’s ahead of next week’s Fed decision, with US policymakers expected to continue signaling no rush to cut rates. Swap markets are fully pricing in a quarter-point rate reduction only in December.
“Additional cooling in job openings this week would also help to bring home the message that the labor market is no longer a meaningful threat for near-term inflation dynamics,” Munoz at TD added.
A contrarian equity sentiment indicator from Bank of America Corp. jumped by the most since late 2023 in May to a two-year high, indicating that negative attitudes toward US stocks are no longer a tailwind.
The so-called Sell-Side Indicator (SSI), a gauge that measures Wall Street strategists’ average recommended US equity allocations, posted the largest increase since December last month, BofA head of US equity and quantitative strategy Savita Subramanian said in a note to clients Monday.
“Extreme bearish sentiment is no longer a tailwind for the index, arguing for a tilt toward active stock selection strategies,” she wrote.
Investors betting on further US equity gains over the coming months will be disappointed, according to strategists at JPMorgan Chase & Co. Their peers at Morgan Stanley disagree.
“We see the market upside capped during summer due to the inconsistency between the consensus call for disinflation, and at the same time, the belief in no landing and in earnings acceleration,” a JPMorgan team of strategists led by Mislav Matejka wrote.
Meantime, Morgan Stanley’s Michael Wilson says his bull case is in play, for now. Rising government debt will continue to fuel spending and inflate asset prices in the short-term — including equities — as long as the bond market doesn’t signal any tension.
Corporate Highlights:
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GameStop Corp. surged as the Reddit account that drove the meme-stock mania of 2021 posted what appeared to be a $116 million position in the video-game retailer.
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JetBlue Airways Corp.’s sales performance for this quarter will be somewhat better than expected as the carrier works to improve operations and capitalize on “healthy overall demand trends.”
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Film producer David Ellison’s offer for Paramount Global includes an option for nonvoting shareholders to cash out a portion of their stock for about $15 a share, according to a person familiar with the matter.
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Waste Management Inc., North America’s largest waste recycling firm, agreed to buy medical-waste disposal company Stericycle Inc. for about $5.8 billion in cash.
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Autodesk Inc. soared after the company reassigned its chief financial officer, a move aimed at resolving an internal accounting investigation that delayed filings for weeks.
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Hedge-fund manager Bill Ackman sold a 10% stake in Pershing Square ahead of a planned initial public offering in a deal valuing the company at more than $10 billion.
Key events this week:
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US factory orders, JOLTS, Tuesday
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China Caixin services PMI, Wednesday
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Eurozone S&P Global Services PMI, PPI, Wednesday
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Canada rate decision, Wednesday
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US ISM services, Wednesday
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Eurozone retail sales, ECB rate decision, Thursday
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US initial jobless claims, trade, Thursday
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China trade, forex reserves, Friday
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Eurozone GDP, Friday
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US unemployment rate, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.1% as of 11:16 a.m. New York time
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The Nasdaq 100 was little changed
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The Dow Jones Industrial Average fell 0.5%
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The Stoxx Europe 600 rose 0.3%
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The MSCI World Index rose 0.1%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.3% to $1.0883
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The British pound rose 0.4% to $1.2787
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The Japanese yen rose 0.8% to 156.08 per dollar
Cryptocurrencies
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Bitcoin rose 2% to $69,140.07
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Ether was little changed at $3,782.33
Bonds
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The yield on 10-year Treasuries declined nine basis points to 4.41%
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Germany’s 10-year yield declined eight basis points to 2.59%
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Britain’s 10-year yield declined eight basis points to 4.23%
Commodities
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West Texas Intermediate crude fell 3.6% to $74.25 a barrel
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Spot gold rose 0.5% to $2,339.44 an ounce
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