Stocks rebound, oil jumps – Daily Market Brief, June 6, 2022

European bourses are set to open on the front foot despite losses on Wall Street on Friday.

·         Chinese services PMI improves in May to 41.4, up from 36.2, COVID restrictions ease further

·         FTSE & the pound rise despite rumours of a vote of no confidence in UK PM Boris Johnson

·         Oil rises as Saudi Arabia hike July prices, despite OPEC+ output increase

The leading indices in the US fell sharply on Friday following a stronger than expected non-farm payroll, which revived speculation that the Federal Reserve would need to tighten monetary policy at a faster pace.

The US saw 390k jobs added in May, and April’s figure was also revised high to 436k. The unemployment report held steady at 3.6%, and wages grew at 5.2%, down slightly from 5.5% in April.

Before the data release, stocks pushed higher on optimism that peak inflation had passed and on speculation that the Fed could pause the rate hiking cycle after September.

Investors will continue looking for signs that peak inflation has passed with the US CPI figure on Friday. Core CPI is expected to fall for a third straight month, which, when combined with the slower wage growth in May, could bring some optimism that consumer prices could be on a downward trajectory.

Shares in Asia gained overnight as Beijing re-opened from COVID restrictions and as China data showed signs of improving. The service sector PMI contracted at 41.4 in May, up from 36.2 in April, although this was still well short of the 47.3 forecast as the zero-COVID restrictions choked the economy. The service sector is expected to bounce back in June as the economy reopens.

In Europe, the FTSE and the DAX are set to open 0.7% higher.

There is little on the economic calendar to drive trading today and with public holidays in some European countries, volumes could be light.

In the UK, attention will be on Westminster as Prime Minister Boris Johnson could face a vote of no confidence this week. His popularity has fallen considerably amid the party gate scandal, and a growing number of conservative MP’s have said that they have lost faith in their leader. Fifty-four letters of no confidence must be submitted to call a vote of no confidence officially.

Last week, the pound came under pressure, falling 1% against the USD and the euro. At the start of the week, sterling is holding steady. However, more political uncertainty, at a time when the economic outlook for the UK is worsening, could spell more bad news for GBP.

easyJet

easyJet is likely to be under the spotlight after cancelling 80 flights over the weekend as travel chaos continues to plague the firm. Overselling tickets and under recruiting staff has meant that the low-cost airline hasn’t been able to cope with surging demand. With the school summer holidays just 7 weeks away it is looking doubtful as to whether easyJet will be able to turn this around to benefit from the strong increase in demand.

Oil

Oil prices are rising, with Brent pushing above $120 per barrel after Saudi Arabia lifted its prices for July. The move comes even after OPEC+ agreed to raise output at 648,000 barrels, double the initially planned rate over the next two months. The fact that Saudi Arabia raised the July price despite the OPEC+ production increase highlights just how tight the oil market is. Easing COVID lockdowns in China combined with expectations of a strong US summer driving season, demand is expected to remain strong, keeping the price supported as supply continues to fall short of demand expectations.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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