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Beyond the Numbers

Upbeat Overseas Manufacturing Data May Generate Buying Interest
6/1/2021 8:57 AM

The major U.S. index futures are currently pointing to a higher open on Tuesday as trading resumes following the long holiday weekend.

Stocks are poised to add to last week’s strong gains amid economic optimism following strong overseas data on manufacturing activity.

Data showed Chinese manufacturing activity expanded at a faster pace in the month of May, while Eurozone manufacturing activity expanded at a record pace in May despite supple bottlenecks.

Not long after the start of trading, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the U.S. in the month of May.

Economists expect the ISM’s manufacturing PMI to come in unchanged at 60.7, with a reading above 50 indicating growth in the manufacturing sector.

Nonetheless, overall trading activity may be somewhat subdued ahead of the release of the Labor Department’s closely watched monthly employment report on Friday.

Economists currently expect employment to jump by 664,000 jobs in May after climbing by 266,000 jobs in April. The unemployment rate is also expected to dip to 5.9 percent from 6.1 percent.

U.S. stocks closed higher on Friday amid rising optimism about the economic recovery thanks to upbeat economic data and prospects of additional fiscal stimulus.

President Joe Biden on Friday unveiled a $6 trillion budget for next year that's piled high with new safety net programs for the poor and middle class.

However, despite strong data and massive stimulus prospects, gains were just modest for all the major averages today as buying interest remained somewhat subdued.

The Dow closed up by 64.81 points or 0.2 percent at 34,529.45, down more than 100 points from the day's high. The Nasdaq settled with a gain of 12.46 points or 0.1 percent at 13,748.74. The S&P 500 ended up by 3.23 points or 0.1 percent at 4,204.11.

For the week, the Dow gained about 0.9 percent, while the Nasdaq and the S&P 500 added 2.1 percent and 1.2 percent, respectively.

Shares of Salesforce.Com (CRM) climbed nearly 6 percent after the company reported first quarter earnings of $469 million or $0.50 per share, up from $99 million or $0.11 per share last year. Adjusted earnings were $1.14 billion or $1.21 per share for the period.

The company raised its earnings forecast for the full year, saying it now expects adjusted earnings of $3.79 to $3.81 per share and revenues of $25.9 billion to $26.0 billion, up from an earlier forecast of $3.39 to $3.41 per share and revenues of $25.65 billion to $25.75 billion.

Amgen (AMGN), Chevron (CVX), Johnson & Johnson (JNJ) and United Health (UNH) posted modest gains, while General Electric (GE), Travelers (TRV), Boeing (BA), Caterpillar (CAT) and Intel (INTC) were among the notable losers.

The mood was positive after an inflation reading preferred by the Federal Reserve showed an acceleration in the pace of price growth but not as much as traders had feared.

The reading on core consumer prices showed the pace of price growth accelerated to 3.1 percent in April from 1.9 percent in March.

While the increase in prices exceeded economist estimates, the jump was apparently not as severe as to raise concerns about the Federal Reserve tightening monetary policy.

The Fed has attributed the recent increase in prices to "transitory factors" and has repeatedly hinted that it will not consider tightening until prices exceed 2 percent for "some time."

The University of Michigan's consumer sentiment index was revised slightly higher to 82.9 in May from a preliminary 82.8, matching market forecasts. The reading still pointed to the lowest consumer confidence level in 3 months.

Personal income in the U.S. tumbled 13.1 percent month-over-month in April, compared to market expectations of a 14.1 percent nosedive after income spiked by a revised 20.9 percent in March.

Personal spending rose 0.5 percent from a month earlier in April 2021 following an upwardly revised 4.7 percent jump in March.

Commodity, Currency Markets

Crude oil futures are spiking $2.16 to $68.48 a barrel after falling $0.53 to $66.32 a barrel last Friday. Meanwhile, after climbing $6.80 to $1,905.30 an ounce in the previous session, gold futures are rising $6.40 to $1,911.70 an ounce.

On the currency front, the U.S. dollar is trading at 109.64 yen compared to the 109.58 yen it fetched on Monday. Against the euro, the dollar is valued at $1.2222 compared to yesterday’s $1.2227.

Asia

Asian stocks ended mixed on Tuesday even as surveys showed factory activity continued to expand in key Asian economies in May thanks to an ongoing recovery in global demand.

Chinese shares eked out modest gains after data showed the country's manufacturing sector expanded at a faster pace in May on robust new orders and production. The Caixin manufacturing Purchasing Managers' Index rose to 52.0 in May, the highest level since December and inching up from 51.9 in April.

The benchmark Shanghai Composite Index rose 9.24 points, or 0.3 percent, to 3,624.71, while Hong Kong's Hang Seng Index jumped 316.20 points or 1.1 percent, to 29,468.

Japanese shares edged lower investors awaited U.S. factory activity numbers and payrolls due this week for further clues on the outlook for the world's biggest economy.

The Nikkei 225 Index slipped 45.74 points, or 0.2 percent, to 28,814.34, while the broader Topix closed 0.2 percent higher at 1,926.18.

Steelmakers led losses, with JFE Holdings and Nippon Steel ending down 4.3 percent and 3.4 percent, respectively. Pharmaceutical stocks also lost ground, with Daiichi Sankyo giving up 2.6 percent.

Renesas Electronics rallied 3.3 percent. The chipmaker said restoring full production capacity at a fire-damaged chip plant in Japan would take longer than expected.

The manufacturing sector in Japan continued to improve in May, the latest survey from Jibun Bank revealed earlier today, with a revised manufacturing PMI score of 53.0, up from 52.5 in April.

Australian markets ended slightly lower as Victoria reported nine new COVID cases and the Reserve Bank of Australia announced no changes to policy settings, as widely expected.

The benchmark S&P/ASX 200 Index dropped 19 points, or 0.3 percent, to 7,142.60, while the broader All Ordinaries Index ended down 14.60 points, or 0.2 percent, at 7,392.10.

Banks ANZ, NAB and Westpac fell between 0.8 percent and 1.4 percent. Miners advanced as iron ore futures surged. Rio Tinto gained 0.7 percent, Fortescue Metals Group advanced 1.7 percent and Mineral Resources climbed 3 percent.

Gold miners Evolution and Northern Star Resources ended down over 1 percent.

Woodside Petroleum, Oil Search and Santos rose over 1 percent after crude oil prices climbed overnight. Nine Entertainment Co. Holdings rose 0.7 percent after signing multi-year content-supply deals with Google and Facebook.

In economic news, the manufacturing sector in Australia expanded at a faster pace in May, the latest survey from IHS Markit Economics revealed, with a survey record manufacturing PMI score of 60.4.

Seoul stocks extended gains for the third straight day amid economic optimism after data showed the country's exports jumped 45.6 percent year-over-year in May to extend their gains to a seventh consecutive month. The benchmark Kospi climbed 17.95 points, or 0.6 percent, to close at 3,221.87.

Chipmaker SK Hynix and internet giant Naver both rose over 1 percent, while pharmaceutical firm Samsung Biologics dropped 1.5 percent.

Europe

European stocks have rallied on Tuesday to reach record highs as investors digest the latest set of factory activity and inflation data.

Eurozone manufacturing activity expanded at a record pace in May despite supple bottlenecks, a survey showed.

IHS Markit's final Manufacturing Purchasing Managers' Index rose to a new record high of 63.1 in May from April's 62.9. This was up from a preliminary 62.8.

Inflation in the region hit its highest level since October 2018 as COVID-19 restrictions across Europe were scaled back, Eurostat said.

Consumer prices in the 19 countries sharing the euro reached 2.0 percent, beyond the target of the European Central Bank.

While the German DAX Index has surged up by 1.6 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are up by 1.2 percent and 1.1 percent, respectively.

The British pound reached a three-year high against the dollar in thin trading after the release of strong manufacturing and housing data.

The IHS Markit/CIPS U.K. Manufacturing Purchasing Managers' Index was finalized at 65.6 in May, up from April's 60.9 as new work intakes rose at record rate.

U.K. house prices grew 10.9 percent year-on-year in May, faster than the 7.1 percent rise seen in April, data published by the Nationwide Building Society revealed. This was the biggest increase since August 2014 and was better than the economists' forecast of 9.2 percent.

In stock-specific action, Daimler AG shares have moved notably higher. The German automaker and Finland's Nokia Corp. have signed a patent licensing agreement.

Under the deal, Nokia licenses mobile telecommunications technology to Daimler and receives payment in return.

Volkswagen has also advanced. Speculation is rife that Porsche Automobil Holding SE, Volkswagen's majority voting shareholder, would be separately listed.

Saint-Gobain shares have also risen. The world's leading glass manufacturer has announced the sale of its Glassolutions Objekt-Center to privately-owned AEQUITA group based in Munich. Saint-Gobain noted that this sale is as part of its continued portfolio optimization strategy.

Meanwhile, CD Projekt has slumped as the Warsaw-listed videogame developer reported a worse than forecast 65 percent decrease in quarterly profit.

U.S. Economic Reports

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

Economists expect the ISM’s manufacturing PMI to come in unchanged at 60.7, with a reading above 50 indicating growth in the manufacturing sector.

Also at 10 am ET, the Commerce Department is due to release its report on construction spending in the month of April. Construction spending is expected to increase by 0.6 percent.

Federal Reserve Vice Chair for Supervision Randal Quarles is also scheduled to participate in a discussion on the economy and financial regulation before a virtual POLITICO Live event at 10 am ET.

At 2 pm ET, Federal Reserve Governor Lael Brainard is due to speak on the economic and monetary policy outlook before a virtual Economic Club of New York webinar.

Stocks In Focus

Shares of Cloudera (CLDR) after moving sharply higher in pre-market trading after the enterprise data cloud company agreed to be acquired by affiliates of Clayton, Dubilier & Rice and KKR (KKR) in an all cash transaction valued at approximately $5.3 billion.

Movie theater operator AMC Entertainment (AMC) is also seeing substantial pre-market strength after announcing the sale of 8.5 million shares to Mudrick Capital Management for $230.5 million in cash. The stock was sold at a price of approximately $27.12 per share.

Shares of Boeing (BA) may also move to the upside after Cowen upgraded its rating on the aerospace giant’s stock to Outperform from Market Perform.
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