Daily Markets: Climbing Oil Prices Weigh on Stocks

Today’s Big Picture

Asia-Pacific equity indexes ended today’s session mixed: Among those that closed in the red, Japan’s Nikkei fell 0.33%, India’s Sensex 0.64% and Australia’s ASX All Ordinaries 0.90% while Korea’s KOSPI rose 0.61%, and Taiwan’s TAIEX and China’s Shanghai Composite both rose 1.19%. Hong Kong’s Hang Seng led the way, closing up 1.38% on the day. By mid-day trading, major European equity indices are down across the board on yet another record high Eurozone CPI print (more below) with the exception of the UK trading up slightly, and U.S. futures point to a soft market open later this morning.

Weighing on those exchanges is the renewed climb in oil prices. EU leaders reached an agreement to ban 90% of Russian crude by the end of the year as part of a sixth sanctions package being formulated against Russia. Oil prices are also getting some lift from the gradual reopening in Shanghai that is expected to unfold in the coming days. Over the weekend, Shanghai authorities announced they would work to ease “unreasonable” Covid rules and earlier today the dismantling of fences around housing compounds began. Starting tomorrow, June 1, curbs will ease for about 22.5 million people in low-risk areas, and businesses will no longer need so-called “white list” approval to have employees working on site. Complicating the return to normalcy, workers will still be required to present a negative Covid test 72 hours before taking public transportation.

The above will make the next OPEC+ meeting scheduled for Thursday, June 2, all the more interesting. Expectations are, however, the group will continue to rebuff calls for it to boost oil output. Meanwhile, fresh data from AAA shows the U.S. average gas price is at a record level of $4.622 per gallon vs. $4.178 a month ago and $3.046 this time last year. 

Fed Governor Chris Waller planted his flag in the “Hawkish” camp yesterday, commenting that he is in favor of raising rates 50 basis points “every meeting until we see substantial reductions in inflation.” These comments echo Fed Governor James Bullard who has advocated for the Fed to raise rates to 3.50% by the end of the year, above what is considered the neutral rate of 2.50%. Still, there are some at the Fed who are looking for a pause after the summer meetings to gauge the effect of rate hikes before putting on the brakes through the rest of the year. Don’t forget that these rate hikes will be accompanied by balance sheet reduction to the tune of $95 billion a month, almost double the rate of the most previous balance sheet reduction exercise in 2017-19, which ran about $50 billion a month. 

Later today, President Biden will meet with Federal Reserve Chairman Jerome Powell to discuss inflation and the state of the economy. Ahead of that get together, Biden shared he would support for the Federal Reserve to take on inflation and move the economy to stable and steady growth in an Op-Ed piece for The Wall Street Journal. Now to see what additional comments are made as the Biden-Powell meeting concludes this afternoon. 

Data Download

International Economy

Last night saw the release of Chinese Manufacturing and Non-Manufacturing PMI for May. Manufacturing PMI at 49.6 surprised 1.1 points to the upside and inched closer to a neutral 50 measure as did Non-Manufacturing PMI which saw a jump to 47.8 from the previous 41.9 reading. Both of these figures have been positively impacted by the loosening of “Zero Covid” policy restrictions and at this rate, barring any further setbacks, we will soon see PMI figures showing expansion instead of contraction.

Preliminary (Flash) Eurozone CPI for May was reported at 8.10%, coming in above expectations of 7.80% and setting yet another record high as energy prices continue to work their way into manufacturing and distribution costs for goods across the European Union.

Domestic Economy

9:45 AM ET will see the release of Chicago PMI for May with expectations for no change from April’s 56.40 reading.

10:00 AM ET sees May Consumer Confidence with expectations of a slight drop to 103.70 from the previously reported 107.30 as inflation continues to impact consumers across the country.

Markets

The stock market concluded a volatile week on a very positive note with the S&P 500 adding 2.47% while the Nasdaq Composite gained and the Dow Jones Industrial Average logged at 1.76% move higher, its sixth advance in a row, snapping its longest weekly losing streak since 1932. Including Friday’s moves, here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -8.60%
• S&P 500: -12.76%
• Nasdaq Composite: -22.46% 
• Russell 2000: -15.92%
• Bitcoin (BTC-USD): -33.2%
• Ether (ETH-USD): -48.6%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, there are no companies expected to report their quarterly results.

Tesla (TSLA) has restored weekly output at its Shanghai plant to nearly 70% of the level which it had operated at before the city’s COVID-19 lockdown.

MoneyGram International (MGI) is preparing to launch a service in partnership with the Stellar blockchain that would allow users to send stablecoins and easily convert them to hard currency. 

According to a report published by Maeil Business News, which cited a source in Samsung’s (SSNLF) supply chain, the company has notified suppliers of its plans to scale back its order volume halfway through 2022, implying that its will ship 280 million units this year – 30 million short of its initial target of 310 million units.

The FT reports Qualcomm (QCOM) is interesting in acquiring a stake in Softbank’s (SFTBY) ARM Holdings chip unit to “create a consortium that would maintain the UK chip designer’s neutrality in the highly competitive semiconductor market.”

Reuters reports Credit Suisse (CS) is in the early stages of weighing options to bolster its capital after a string of losses has eroded its financial buffers.

Norwegian Air Shuttle ASA has reached an agreement in principle with Boeing (BA) for a recommitment to purchase 50 Boeing 737 MAX 8 aircraft.

Gold Fields Limited (GFI) and Yamana Gold Inc. (AUY) announced that they have entered into a definitive agreement, under which Gold Fields will acquire all of the outstanding common shares of Yamana in a $6.7 billion transaction.

IPOs

Shares of Zhong Yang Financial Group (TOP) are expected to start trading on June 1. Quiet periods on the shares of Bausch + Lomb (BLCO), PepGen (PEPG), and Austin Gold (AUST) end, allowing analysts at the firms that underwrote those transactions to publish their respective investment ratings. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Ambarella (AMBA), ChargePoint (CHPT), HP (HPQ), Salesforce (CRM), Trip.com (TCOM), and Victoria’s Secret (VSCO) are slated to report their latest quarterly results. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. 

On the Horizon

Wednesday, June 1

• Japan: Markit/JMMA PMI Manufacturing – May
• China: Caixin PMI Manufacturing – May
• Germany: Retail Sales – April
• Eurozone: Markit PMI Manufacturing – May
• UK: CIPS Manufacturing PMI – May
• US: Weekly MBA Mortgage Applications
• US: Markit Manufacturing PMI – May
• US: ISM Manufacturing Index – May
• US: Construction Spending – April
• US: JOLTS Job Openings – April
• US: Fed Beige Book 

Thursday, June 2

• Eurozone: PPI – April
• US: ADP Employment Survey – May
• US: Unit Labor Costs & Productivity – 1Q 2022
• US: Durable Orders – April
• US: Factory Orders – April

Friday, June 3

• Japan: Services PMI – May
• Eurozone: Markit Services PMI – May
• Eurozone: Retail Sales – April
• US: Employment Report – May
• US: Markit PMI Services – May
• US: ISM Non-Manufacturing Index – May

Thought for the Day

“The most important quality for an investor is temperament not intellect.” ~ Warren Buffett

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.