A look at the day ahead in U.S. and global markets from Mike

Dolan

With a still-powerful "buy the dip" instinct in stocks, U.S.

markets are having a rare bout of jitters about a slowing

economy - with Treasury yields, the dollar and oil prices all

swooning over the past 24 hours.

Wall Street's tech-led "bounce-ability" was on display again

on Monday as the S&P500 clawed back sharp intra-day

losses to close higher on the day.

But the rates, currency and commodities complex is riffing

heavily off further signs of a sharp U.S. factory slowdown.

While an economic stumble at this stage could be a

double-edged sword for near-record high stocks - twinning the

earnings implications with the higher chance of lower Federal

Reserve rates - the push-pull could continue up to this week's

key employment report at least.

S&P500 futures are back in the red ahead of Tuesday's open,

with stock losses across most of Asia and Europe today too.

On Monday, the ISM's latest U.S. manufacturing survey showed

a deeper contraction in May activity than forecast, amplifying

similarly stark readings from Chicago's equivalent factory poll

late last week and signs of an erosion of household spending in

April to boot.

The combination has been enough to drag the Atlanta Fed's

real-time "GDPNow" estimate back down as low as 1.8% - from as

high 3.5% a week ago and more than 4% in mid-May and its lowest

reading all year.

The week's big labor market soundings get underway later on

Tuesday with April job openings data.

Full-year Fed rate cut expectations have now crept back

above 40 basis points (bps) - almost 10 bps higher than a week

ago.

Both driven by and feeding off a post-OPEC slide in crude

oil prices - itself a casualty of the manufacturing

anxiety - 10-year Treasury yields fell back to their

lowest in almost three weeks. Oil prices snowballed further on

Tuesday to their lowest since Feb. 6 - bringing year-on-year

gains back below 2% for the first time in three months.

And the 25 bps pullback in 10-year yields over the past week

has been enough to zap the newly re-emerged "term premium" on

long-term debt holdings back below zero again.

ELECTION RESULTS

The dollar was also a victim, with its DXY index

falling to the its lowest level in almost two months before

steadying. The euro briefly hit its highest since

mid-March ahead of this week's widely-expected European Central

Bank interest rate cut, while dollar/yen recoiled to 155

for the first time since May 16.

Checking the dollar's fall more broadly, however, has been

an ongoing slide in Mexico's peso, a recoil in India's

rupee and renewed losses in South Africa's rand

after election results this week in all three countries.

The rupee fell sharply to a three-week low as provisional

results in India's protracted election showed Narendra Modi's

BJP-led alliance was well short of the super-majority weekend

exit polls had suggested.

But the real hit was to Indian stocks, which tanked

more than 8% in the biggest loss in more than four years - after

hopes on Monday of major reforms and spending in the event of a

two-thirds majority parliamentary were doused and knocked the

market back from record highs.

The peso, meantime, has racked up losses of up to 5% since

Friday after Claudia Sheinbaum's presidential election win and

near-super majority for the left-wing Morena party. The concern

surrounds possible constitutional changes that could occur as

well as an apparent free rein on public spending.

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

on Tuesday:

* US April job openings, April factory goods orders

* US corporate earnings: Hewlett Packard Enterprise, Bath & Body

Works

(By Mike Dolan, editing by Alex Richardson

[email protected])