Stocks stabilized in June after hopes faded

LONDON (Reuters) – Stocks held steady and the dollar rose on Monday as investors looked to ease prospects of a Federal Reserve rate hike in June after a mostly encouraging U.S. jobs report, while oil prices jumped after Saudi Arabia made major production cuts.

The European benchmark STOXX (.STOXX) rose 0.1% in early trade, led by gains in the oil and gas sector index (.SXEP) and echoing a 0.2% gain in MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS).

Japan’s Nikkei (.N225) earlier rose 2.1% to stand above 32,000 for the first time since July 1990.

While markets failed to resume last week’s rally, data released on Friday showed wage pressures easing and the unemployment rate rising from a 53-year low, giving hope that the Fed is making more headway against inflation.

This, in turn, could mean that a pause in rate hikes was decided at the June 13-14 meeting, although data released at the end of last week also showed that payrolls far exceeded expectations, a possible sign of inflation.

These mixed signals and the lack of fresh indications on Fed policy sent US stock markets higher for a directionless session early Monday, with S&P 500 futures up 0.06% while Nasdaq futures fell slightly.

Oil prices, which have recently come under pressure amid growing concerns about a slowdown in the Chinese economy, rose after Saudi Arabia announced it would cut production to 9 million barrels per day in July, from about 10 million barrels per day in May, the biggest drop in years.

Brent crude rose 1.7 percent to $77.44 a barrel by 1100 GMT, giving up some of its previous gains to $78.73 a barrel, while US crude rose 1.85 percent to $73.07 a barrel, after hitting a session high of $75.06.

“With Saudi Arabia protecting oil prices from a severe slide… we think oil markets are now more vulnerable to shortages later this year,” said Vivek Dhar, mining and energy commodities expert at Commonwealth Bank of Australia.

“We believe Brent crude futures will rise to $85 by the fourth quarter of 2023 even taking into account the recovery of tepid demand in China.”

Hey June, don’t make it bad

Data on Friday showed that the US economy added 339,000 jobs last month, higher than most estimates, but moderate wage growth and high unemployment caused markets to price in a 75% chance of no change to the Fed’s interest rates in June, according to CME FedWatch. .

This would be generally positive for stocks, albeit with a 70% chance that the federal funds rate will reach 5.25-5.5% or more at the July policy meeting, if US inflation remains high. On the contrary, the markets now see little chance of a rate cut by the end of this year.

Treasury yields continued to climb on Monday. US 2-year Treasury yields rose 5 basis points to 4.5494%, on top of an increase of 16.2 basis points on Friday, and 10-year yields rose 5 basis points to 3.7447%, after rising 8 basis points on Friday.

Fitch Ratings said the US credit rating of “AAA” would remain on negative watch, despite the debt deal.

The US dollar was at 104.25 against its major peers on Monday, after rising 0.5% on Friday on the back of the jobs report. The dollar also rose 0.1% on the Japanese yen to 140.26, while the euro fell 0.1% to 0.1069 dollars.

The central banks of Australia and Canada will meet this week. Markets see a high chance – about 40% – that the RBA will surprise with a quarter-point hike on Tuesday, after raising the minimum wage that economists fear could add to inflationary pressures.

The Bank of Canada will meet on Wednesday. The majority of economists polled by Reuters expect the Bank of Canada to keep interest rates on hold at 4.5 percent for the rest of the year, although the risk of another rate hike remains high.

Additional reporting by Stella Keogh, Editing by Sam Holmes, Kim Coghill, Ed Osmond and Chizu Nomiyama

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