America is gripped by protests and riots. Relations between China and the United States continue to be tense; against this backdrop, the US stock market is set to decline.
The oil industry is also in suspense – in anticipation of the next OPEC + meeting to reduce production. Also on Monday released data on the index of business activity (PMI) in manufacturing in May from ISM. Here’s what you need to know about financial markets on Monday, June 1.
- The United States is on the verge; protests escalate into violence
What began as a peaceful demonstration against the murder of African-American George Floyd by policemen in Minnieapolis grew into violent protests that affected many cities from Philadelphia to Los Angeles and reached the White House.
The pressure on President Donald Trump has intensified as he faces accusations of incitement to racial violence after calling on his supporters to confront protests outside the White House. He also said the US would call the left-wing Antifa group a “terrorist organization.”
Riots undermine the economy, which has just begun to emerge from the recession, with a great depression. After poor consumer spending and trade data released Friday, the Atlanta Federal Reserve Bank said the recession could reach a staggering 51% year over year in the second quarter.
- Trump stepped off the edge in relations with China
Financial markets were anxiously awaiting President Trump’s reaction on Friday to China’s decision to introduce Hong Kong national security law. In the end, the US president said that he would deprive Hong Kong of his special status in the United States, but did not refuse the recently signed trade agreement with China, which the market was so afraid of.
Nevertheless, relations between the two economic superpowers have become particularly tense, and such a step cannot be ruled out in the future, especially since the US presidential election is approaching.
Bloomberg reported Monday that Chinese government officials ordered large state-owned agricultural firms to suspend purchases of some US farm products, including soy and pork, as Beijing is trying to assess the recent escalation of tensions between the two countries.
“If Trump wants to increase his chances and not give Biden a chance in November, then he should become even tougher on China than at present,” the Nordea research note said.
- The stock market opens lower, but Goldman makes an optimistic forecast
The US stock market will begin June decline after strong growth in May. The ongoing unrest across the country amid escalating tensions with China is likely to put pressure on the market in anticipation of the release of data on the business activity index (PMI) in manufacturing from ISM.
At 06:30 am ET (10:30 GMT), the Dow Jones 30 futures contract fell 26 points, or 0.1%, the S&P 500 futures contract fell 0.2%, and the Nasdaq 100 futures contract fell 0 ,4%.
Nevertheless, there was a positive note: Goldman Sachs Bank abandoned its forecast for another sharp sale in the market.
The investment bank has revised its forecast that the S&P 500 will drop to 2,400 – more than 20% below the closing level last Friday – 3,044, and now anticipates that the risk of falling will be limited to 2,750. The US stock market benchmark may even grow to 3,200.
“A strong rebound means that our previous three-month target of 2,400 is unlikely to be achieved,” the strategists said. “Support for monetary and fiscal policy is likely to be limited to a reduction of about 10%.” P
And in Asia, the Nikkei benchmark index rose 0.8%. In Europe, the German stock exchange closed on a public holiday on June 1, while the FTSE 100 index in London and the CAC 40 index in Paris rose by 1%.
- Pending PMI data in manufacturing
This week, few statements by officials from the US Federal Reserve are expected, as they are now traditionally preparing for the next meeting on monetary policy, which will take place later this month, but there will be a lot of economic data that needs to be studied.
On Monday, the Procurement Managers Index (PMI) in the manufacturing sector from ISM will be published on May at 10:00 AM Eastern time (14:00 GMT). He is expected to show improved sentiment in the manufacturing sector, rising from 41.5 in April to 43.0, as part of the American economy began to quit.
However, such an improvement is not taken for granted. Nordea, in its research note, said that in May the indicators will still be weak, referring to the disappointing weekly release of the economic index from the Federal Reserve Bank of New York.
On Friday, important data on the labor market in the non-agricultural sector will be released,
News from Europe is not particularly encouraging, as manufacturing activity in the eurozone is still falling.
- Will there be an OPEC meeting this week?
Oil prices have been rising recently, and Brent and WTI contracts have shown the strongest monthly increase for crude oil in May for many years, as oil production by the Organization of Petroleum Exporting Countries and its allies (OPEC +) fell to the lowest level last two decades.
To reinforce this change of mood, Algeria, which is currently chairing the OPEC, proposed reschedule the OPEC + meeting, scheduled for June 9-10, this Thursday.
One of the topics of discussion, most likely, will be the extension of the current reduction of 9.7 million barrels per day for a period of one to two months. In accordance with the current deal, the group plans to reduce production to 7.7 million barrels per day from July.
“A shorter period may make the extension of production cuts more enjoyable for Russia, which is not interested in extending current cuts until the end of this year, which was suggested by other parties to the deal,” analysts at ING said.