Market Analysis

Beyond the Numbers

Traders May Take A Breather Following Recent Strength
6/1/2020 8:54 AM

The major U.S. index futures are currently pointing to a roughly flat opening on Monday, with stocks likely to show a lack of direction following the strong upward move seen in May.

Traders may be reluctant to make significant moves following the recent strength on Wall Street, which has lifted the Nasdaq back within striking distance of its record highs.

The major averages all moved sharply higher last month amid optimism about the economy reopening, with the Dow and the S&P 500 spiking by 4.3 percent and 4.5 percent, respectively, while the Nasdaq soared by 6.8 percent.

Some positive sentiment may be generated in reaction to a private survey showing the Chinese manufacturing sector expanded in May.

The Caixin manufacturing PMI score came in at 50.7 in May, beating expectations for a score of 49.6 and up from 49.4 in April. A reading above 50 indicates an expansion in manufacturing activity.

At the same time, traders may be somewhat unnerved by the political unrest across the country following the death of George Floyd, with a number of major retailers temporarily closing their stores in areas hit hard by protests.

Stocks showed wild swings over the course of the trading day on Friday before eventually ending the session mostly higher. With the upward move, the Nasdaq reached a new three-month closing high and the S&P 500 ended the day at its best closing level since early March.

The major averages moved to the upside late in the session as traders reacted positively to President Donald Trump's highly anticipated press conference about China.

The Dow slipped into the red in the final minutes of trading, edging down 17.53 points or 0.1 percent to 25,383.11, but the broader Nasdaq and the S&P 500 closed firmly positive. The Nasdaq jumped 120.88 points or 1.3 percent to 9,489.87 and the S&P 500 climbed 14.58 points or 0.5 percent to 3,044.31.

For the holiday-shortened week, the Dow spiked by 3.8 percent, the S&P 500 soared by 3 percent and the Nasdaq surged up by 1.8 percent.

Trump lashed out at China in his brief remarks, but traders seemed relieved that he did not announce new tariffs or a withdrawal from the phase one trade agreement.

Following China's recent move to approve a controversial security law for Hong Kong, Trump said he is directing his administration to remove special exemptions for the city.

Trump argued Hong Kong is "no longer sufficiently autonomous" to warrant preferential treatment by the U.S., claiming China has abandoned the idea of "one country, two systems."

The president also announced that he is suspending the entry of certain foreign nationals from China into the U.S. as well as instructing a presidential working group on financial markets to study Chinese companies listed on U.S. exchanges.

Trump also revealed that he is terminating the U.S.' relationship with the World Health Organization, claiming China has total control of the agency.

In U.S. economic news, the Commerce Department released a report unexpectedly showing a substantial increase in U.S. personal income in the month of April, reflecting the distribution of stimulus checks by the federal government.

The Commerce Department said personal income spiked by 10.5 percent in April after tumbling by a revised 2.2 percent in March.

The jump in personal income came as a surprise to economists, who had expected income to plunge by 6.5 percent compared to the 2.0 percent slump originally reported for the previous month.

Meanwhile, the report showed a steep drop in personal spending due to the impact of the coronavirus-induced lockdown.

The Commerce Department said personal spending plummeted by 13.6 percent in April after a revised 6.9 percent slump in March.

Economists had expected spending to tumble by 12.6 percent compared to the 7.5 percent nosedive originally reported for the previous month.

Meanwhile, revised data released by the University of Michigan showed consumer sentiment in the U.S. improved by slightly less initially estimated in the month of May.

The report showed the consumer sentiment index for May was downwardly revised to 72.3 from the preliminary reading of 73.7. Economists had expected the index to be upwardly revised to 74.0.

Despite the unexpected downward revision, the consumer sentiment index is still slightly above the April reading of 71.8.

Technology stocks moved sharply higher over the course of the trading session, contributing to the significant advance by the tech-heavy Nasdaq.

Computer hardware and semiconductor stocks posted particularly strong gains, driving the NYSE Arca Computer Hardware Index and the Philadelphia Semiconductor Index up by 2.8 percent and 2.7 percent, respectively.

Notable strength also emerged among healthcare stocks, as reflected by the 1.3 percent gain posted by the Dow Jones U.S. Health Care Index. With the upward move, the index reached its best closing level in over three months.

Pharmaceutical, gold and retail stocks also moved to the upside on the day, while significant weakness was visible among banking and energy stocks

Commodity, Currency Markets

Crude oil futures are slipping $0.20 to $35.29 a barrel after spiking $1.78 to $35.49 a barrel last Friday. Meanwhile, after jumping $23.40 to $1,751.70 an ounce in the previous session, gold futures are sliding $6.30 to $1,745.40 an ounce.

On the currency front, the U.S. dollar is trading at 107.68 yen versus the 107.83 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at 1.1106 compared to Friday’s $1.1101.


Asian stocks advanced on Monday after U.S. President Donald Trump stopped short of threatening tariffs on China and data showed Chinese factory activity expanded in May. Investors shrugged off political unrest in the U.S. and worries about a resurgence of the coronavirus.

Chinese shares rallied after a private survey showed the manufacturing sector in the country moved into expansion territory in May.

The Caixin manufacturing PMI score came in at 50.7 - beating expectations for a score of 49.6 and up from 49.4 in April. The official manufacturing PMI for the month stood at 50.6, slightly below forecasts for a score of 51.0.

China's Shanghai Composite Index jumped 63.08 points, or 2.2 percent, to 2,915.43, while Hong Kong's Hang Seng Index surged up 771.05 points, or 3.4 percent, to 23,732.52.

Japanese stocks hit a three-month high on growing optimism about the phased business restart in the capital. The Nikkei 225 Index climbed 184.50 points, or 0.8 percent, to 22,062.39, the highest close since February 26.

The broader Topix index closed 0.3 percent higher at 1,568.75, led by securities house, electric power and gas, and electric appliance companies.

Market heavyweights SoftBank Group and Fast Retailing rose 3.9 percent and 2.2 percent, respectively.

In economic news, the latest survey from Jibun Bank revealed that the manufacturing sector in Japan continued to contract in May, and at a faster rate, with a manufacturing PMI score of 38.4, down from 41.9 in April.

Australian markets finished notably higher as coronavirus restrictions eased across the country. The benchmark S&P/ASX 200 Index climbed 63.50 points, or 1.1 percent, to 5,819.20, while the broader All Ordinaries Index ended up 66.20 points, or 1.1 percent, at 5,938.40.

Stronger commodity prices helped lift miners, with BHP, Fortescue Metals Group and Rio Tinto rising 3-6 percent. Gold miners Evolution and Newcrest surged around 3 percent.

The big four banks rose between 0.2 percent and 0.9 percent ahead of the Reserve Bank of Australia’s interest rate decision on Tuesday.

Shares of Vicinity Centres entered a trading halt after the retail property group said it will raise A$1.4 billion through a share sale to provide a buffer against the uncertainty arising from Covid-19 and will not pay any dividend to shareholders for the six months ending June 30.

Australia's manufacturing sector logged a sharp deterioration in operating conditions in May amid ongoing measures to contain the spread of the coronavirus, or Covid-19, survey results from IHS Markit showed today. The Commonwealth Bank Factory Purchasing Managers' Index fell to 44.0 in May from 44.1 in April.

Seoul stocks rallied after Trump's speech on Friday lacked specifics around measures that would directly impact Hong Kong, leaving room for the possible de-escalation of tensions in the future. The benchmark Kospi jumped 35.48 points, or 1.8 percent, to 2,065.08.

Chipmaker SK Hynix rallied 2.6 percent, automaker Hyundai Motor added 2 percent and chemical maker LG Chem rose 1.4 percent. Market heavyweight Samsung Electronics rose 1 percent.

The manufacturing sector in South Korea continued to contract in May, and at a faster rate, the latest survey from IHS Markit revealed with a manufacturing PMI score of 41.3, down from 41.6 in April.

Another report showed that South Korea had a merchandise trade surplus of $0.44 billion in May - beating forecasts for a deficit of $1.1 billion following the $1.4 billion shortfall in April.


European stocks have risen in thin holiday trading on Monday after U.S. President Donald Trump stopped short of threatening tariffs on China and a private survey showed that China's manufacturing sector moved into expansion territory in May.

Meanwhile, the downturn in the euro area manufacturing sector eased noticeably in May as companies restarted work, final data from IHS Markit showed.

The manufacturing Purchasing Managers' Index improved to 39.4 in May from April's record low of 33.4. The flash reading was 39.5. Germany recorded the lowest PMI of all countries, followed by Spain.

The U.K. manufacturing sector activity contracted as expected in the month of May, the final report from IHS Markit revealed with a score of 40.7.

While the U.K.’s FTSE 100 Index has advanced by 0.9 percent, the French CAC 40 Index is up by 1 percent.

Associated British Foods has jumped after the company said Primark is currently trading in 112 stores, which represent 34 percent of its total selling space. On 15 June, it is expected to be operating from 281 stores representing 79 percent of total selling space.

RSA Insurance Group has also risen after issuing a statement regarding FCA's update on court proceedings in relation to business interruption insurance.

Italy's Mediobanca has soared after billionaire Leonardo Del Vecchio confirmed he had asked the European Central Bank for permission to increase his stake in the company.

On the other hand, fashion brand Ted Baker has slumped after it unveiled plans to raise 95 million pounds by selling new shares.

U.S. Economic Reports

At 10 am ET, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of May.

The purchasing managers index is expected to climb to rise to 43.0 in May from 41.5 in April, although a reading below 50 would still indicate a contraction in manufacturing activity.

The Commerce Department is also scheduled to release its report on construction spending in the month of April at 10 am ET. Economists expect construction spending to plunge by 6.0 percent.

Stocks In Focus

Shares of Coty (COTY) are moving significantly higher in pre-market trading after the cosmetic maker announced an agreement to sell a majority interest in its retail hail business to KKR & Co. (KKR) and naming chairman Peter Harf as CEO.

Southwest Airlines (LUV) is also likely to see initial strength after revealing it received $651.8 million as the second tranche of the Treasury Department’s Payroll Support Program.

On the other hand, shares of Pfizer (PFE) are likely to come under pressure after the drug giant reported disappointing results from a phase 3 trial of its new breast cancer therapy.

Brazilian jet maker Embraer (ERJ) may also move to the downside after reporting a wider than expected first quarter loss on revenues that came in below analyst estimates.
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