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Morning Bid: Relief (mostly) everywhere

Published 05/06/2024, 05:20 AM
Updated 05/06/2024, 05:27 AM
© Reuters. A trader works inside a booth, as screens display a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 1, 2024. REUTERS/Stefan
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A look at the day ahead in U.S. and global markets from Dhara Ranasinghe.

The relief across world markets as signs of a softening in the U.S. jobs markets strengthens the case for Federal Reserve rate cuts to start later this year remains palpable.

Not only did U.S. 10-year Treasury yields end Friday down 17 basis points, in their biggest weekly drop of the year, but the S&P 500 stock index had its best day in over two months.

Investors in Asia picked up the buy-baton on Monday, sending MSCI's broadest index of Asia-Pacific shares outside Japan to its highest in over a year and government bond yields in Europe are lower again.

For sure, public holidays in Japan and Britain make for quieter trade, but there is little doubt the mood music in markets has changed after Friday's news that the U.S. economy created 175,000 new jobs in April, the lowest since October.

Money markets are back to pricing in roughly two 25 bps Federal Reserve rate cuts this year. Last week, traders came close to no longer fully pricing in one cut for the year as nervous markets started to position again for higher for longer rates.

Market attention now turns to the Fed's Senior Loan Officer Survey, a closely-watched indicator of credit conditions, expected later in the session.

The last survey, released in February, showed U.S. banks anticipated an increase in demand for loans as rates fall this year.

One key question is whether the improvement in bank lending conditions could be undermined by the rise in government borrowing costs this year, with two-year Treasury yields up 55 bps.

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It is also notable that the relief felt across world markets after the latest U.S. jobs data did not last long for some. While dollar/yen fell sharply after those numbers on Friday as markets renewed Fed rate-cut nets, the currency par is 0.5% firmer in early European trade not far off 154.

That essentially means the Bank of Japan, which was suspected to have intervened in currency markets last week to shore up a weak yen, still has its work cut out.

Given that Japanese authorities picked last week's quiet periods to intervene in the currency market, traders will be on high alert through the day.

Elsewhere, China's yuan surged to a six-week high against the dollar, catching up on the first trading day after the long Labor Day holiday, as the central bank set a much strengthened midpoint fixing to track offshore movements.

Apple shares (NASDAQ:AAPL), meanwhile, could be in focus after news at the weekend that Berkshire Hathaway (NYSE:BRKa) significantly reduced its enormous stake in the iphone maker.

Key diary items that may provide direction to U.S. markets later on Monday:

* U.S. April employment trends, New York Fed's Global Supply Chain Pressure Index for April

* New York Federal Reserve President John Williams, Richmond Fed President Thomas Barkin speak. Swiss National Bank Chair Thomas Jordan speaks

* Chinese President Xi Jinping in France as part of week-long visit to Europe

* U.S. corporate earnings: Tyson Foods (NYSE:TSN), Loews (NYSE:L), Microchip Technology (NASDAQ:MCHP), Axon, Vertex Pharmaceuticals (NASDAQ:VRTX), Realty Income (NYSE:O), Simon Property (NYSE:SPG), FMC (NYSE:FMC), International Flavors & Fragrances (NYSE:IFF), Progressive Corp (NYSE:PGR), Williams

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* U.S. Treasury auctions 6-month bills

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