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Morning Bid: Dip buying persists, Canada set to ease
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Morning Bid: Dip buying persists, Canada set to ease
Jun 5, 2024 3:31 AM

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

Any investor trepidation about a slowing U.S. economy is once again being offset by renewed interest rate cut hopes - seeing the third day in row that Wall St stocks have turned around early losses to end higher by the close.

In a week packed with employment updates, Tuesday's hat-trick of late market rallies followed further signs of a cooling U.S. labor market. U.S. job openings fell more than expected in April to the lowest in more than three years, with the ratio of vacancies to job-seekers also back at mid-2021 levels.

With one eye on Friday's May employment report, Wednesday's release of ADP's private sector job survey is next on the slate and a modest slowdown in job creation to 175,000 is forecast.

But already Federal Reserve rate cut speculation is back on the boil - with 45 basis points of 2024 Fed easing back in the futures strip and a near 80% chance of pre-election first move priced by September.

Aided by this week's plunge in energy prices and crude oil back at February levels, U.S. Treasury yields ebbed further on Tuesday before steadying today as they await the big jobs release later in the week.

Whatever the Fed does, the Bank of Canada is set to beat it to the punch and is widely expected cut as soon as Wednesday.

With inflation back in the BoC's 1-3% target range and following disappointing early year growth readings, money markets have priced an 80% chance of a quarter point cut later today and three quarters of economists polled also expect one.

Reflecting the forecasts, the Canadian dollar was steady ahead of the decision.

More broadly, monetary easing around the world is the main reason renewed Fed rate cut speculation has done such little damage to the U.S. dollar.

With a European Central Bank rate cut also widely expected on Thursday, four of the G7 economies would then be in easing mode. And following rate cuts in Switzerland and Sweden already this year, four central banks of the G10 most traded currencies will likely have cut by the end of this week.

Even though the Bank of Japan is heading in the opposite direction, the yen fell back again on Thursday. Japan's inflation-adjusted 'real' wages fell 0.7% in April from a year earlier - extending a record streak of 25 consecutive monthly declines - but slowed the pace of decline as the BoJ watches closely.

Japanese and Chinese benchmark stocks were in the red on Wednesday - bucking a more upbeat day for other bourses across Asia and Europe.

China markets were dragged lower by consumer and property shares, despite an unexpected pickup in service activity in May.

China's services activity in May accelerated at the quickest pace in 10 months, while staffing levels expanded for the first time since January, a private sector survey showed on Wednesday.

Indian shares recovered some of Tuesday's withering election-related losses, jumping back 3% after two key allies pledged their support to form a new government following a narrow win for Prime Minister Narendra Modi's alliance.

Back on Wall St, S&P500 futures were higher ahead of the opening.

And a potential rival to the New York Stock Exchange was gaining some attention.

A group backed by BlackRock and Citadel Securities is planning to start a new national stock exchange in Texas, a spokesperson for Citadel Securities said on Tuesday.

The Texas Stock Exchange, which has raised about $120 million, plans to file registration documents with the Securities and Exchange Commission later this year, The Wall Street Journal reported.

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

* Bank of Canada policy decision

* US May ADP private sector jobs report, US May service sector surveys from ISM and S&PGlobal

* US President Joe Biden visits France for 80th D-Day anniversary

* US corporate earnings: Dollar Tree, Lululemon, Campbell Soup, Brown-Forman

(Editing by Bernadette Baum)

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