By Peter Nurse
Investing.com — America is on edge as protests against police brutality, some turning violent, continue throughout the nation, while tensions between China and the U.S. continue to escalate. The oil industry is also in focus with OPEC potentially meeting early to discuss further output cuts. And there’s the May U.S. ISM manufacturing PMI data to study. Here’s what you need to know in financial markets on Monday, 1st June.
1. U.S. on edge; Protests turn violent
What started as a peaceful demonstration against police killings of black people after the death of George Floyd as he was restrained by Minneapolis police officers has turned into violent protests that have ravaged cities from Philadelphia to Los Angeles and flared near the White House.
Pressure is mounting on President Donald Trump, as he faces accusations of inciting racial violence as he appeared to call on his supporters to counter-protest outside the White House. He has also said the U.S. will designate the far-left Antifa group a ‘terrorist organisation’.
The turmoil was a fresh setback for the economy which was only just emerging from a downturn akin to the Great Depression. Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51% annualised in the second quarter.
2. Trump pulls back from the edge with China, for now
Financial markets tuned in nervously to President Trump’s response Friday to China’s decision to impose a national security law on Hong Kong. In the end, the president said he would strip Hong Kong of its special status with the U.S., but didn’t renounce the recently signed trade deal with China, as the market had feared.
Still, relations between the two economic superpowers are particularly tense, and such a move can’t be ruled out in the future, especially as the U.S. Presidential election draws nearer.
Especially as Bloomberg reported Monday that Chinese government officials have told major state-run agricultural firms to pause purchases of some American farm goods, including soybeans, as Beijing looks to evaluate the recent escalation in tensions between the two nations.
“If Trump wants to increase his chances of beating Biden in November, then he needs to turn even tougher than China than he currently is,” said analysts at Nordea, in a research note.
3. Stocks set to open lower; Goldman turns more positive
U.S. stock markets are set to open a little lower, after posting a positive month in May. Continuing disturbances throughout the country on top of heightened tensions with China will likely weigh on the market ahead of the release of ISM manufacturing PMI data.
By 6:30 AM ET (1030 GMT), the contract was down 26 points or 0.1%, while the contract was down 0.2% and the contract was down 0.4%.
Still, on a more positive note, Goldman Sachs (NYSE:) has abandoned its call for another steep sell-off.
The investment bank has rolled back its prediction that the S&P 500 would slump to the 2,400 level — over 20% below Friday’s 3,044 close — and now see downside risks capped at 2,750. The U.S. equity benchmark could even rally further to 3,200.
“The powerful rebound means our previous three-month target of 2,400 is unlikely to be realized,” the strategists wrote. “Monetary and fiscal policy support limit likely downside to roughly 10%. Investor positioning has oscillated between neutral and low and is a possible 5% upside catalyst.”
In Asia, the benchmark index gained 0.8%. In Europe, with Germany closed for a June 1 public holiday, the in London and the CAC-40 in Paris both rose 1%.
4. ISM Manufacturing PMI on the data slate
This week will see little of Federal Reserve officials as they are now in the traditional blackout period ahead of their next policy meeting later this month, but there will be plenty of economic data to study.
Friday sees the important release, but ahead of that comes for May, at 10 AM ET.
This is expected to show an improvement in sentiment in the manufacturing sector, with the index expected to climb to 43.0 from 41.5 in April, as parts of the U.S. economy started to emerge from the lockdown.
However, an improvement isn’t a given. Nordea said, in a research note, that it wouldn’t be a surprise to see an even weaker reading in May, citing a disappointing Weekly Economic Index release from the New York Fed as well as the April index having not dropped as much as had been expected.
The news from Europe wasn’t particularly encouraging, as although manufacturers in the euro zone appear to have passed their nadir, activity is still contracting sharply.
5. OPEC meeting this week?
Oil prices have been on the tear of late, with the front-month and WTI contracts posting their strongest monthly gains in years in May as crude production by the Organization of Petroleum Exporting Countries and its allies, a grouping known as OPEC+, dropped to its lowest level in two decades.
To solidify this change in sentiment, Algeria, which currently holds the OPEC presidency, has proposed that an OPEC+ meeting planned for June 9-10 be brought forward to this Thursday.
One of the topics of discussion will likely be an extension of the current cuts of 9.7 million barrels a day for between one to two months. Under the current deal, the group is scheduled to reduce the scale of cuts to 7.7 million barrels a day from July.
“A shorter period may make an extension more palatable to the Russians, who were not keen to extend current cuts through until the end of this year, which was reportedly suggested by other members of the deal,” said ING, in a research note to clients.
By Peter Nurse