Market Commentary: Signs of US economic recovery help offset social unrest jitters

StockFanatic

Publish date: Tue, 02 Jun 2020, 10:27 AM

· All three major stock indices began the month with gains of less than 1% on the heels of a strong May rally. Economic data boosted investor sentiment, with the Institute for Supply Management's (ISM) purchasing managers' index (PMI) showing the contraction of factory activity was slowing.

· Violent protests over police brutality during the weekend didn't make much of a dent on financial markets, as the protests aren't expected to take a long-term toll on growth. Investors instead eyed initiatives to reopen the economy and Sino-American tensions.

· The Dow Jones Industrial Average rose 0.36% to 25,475.02, the S&P 500 gained 0.38%, to 3,055.73 and the Nasdaq Composite added 0.66%, to 9,552.05. Of the 11 major sectors in the S&P 500, all but healthcare ended the session in positive territory.

· The PMI readings suggest the deterioration in US factory activity was slowing down, but analysts noted May's reading was propped up by the increased time it took for suppliers to deliver goods to US manufacturers, usually a sign of strong demand. However, now the delays were more a symptom of disruptions in global supply chains as factories across the world were shuttered to stem the Covid-19 pandemic.

· A fuller picture of the economic damage wrought by pandemic-related lockdowns is expected on Friday, when the Labour Department's jobs report is expected to show unemployment skyrocketing to 19.7%.

· There are also concerns that rising risks of the domestic racial strife and US-China tensions could reverse the market's massive comeback.

· In a late address from the White House, President Donald Trump said he will deploy the military if states and cities failed to quell the demonstrations. Futures fell as Trump spoke.

· China told two state-owned agricultural companies to halt purchases of US soy beans under the phase-one trade deal, while also cancelling other US farm goods like pork, in retaliation for President Trump's announcement that he would end special treatment for Hong Kong following China's move to tighten security measures in the territory.

· The halt is the latest sign that the hard-won trade deal forged by the world's two biggest economies in January is in jeopardy. Beijing's move may erode the risk-on sentiment prevailing in markets.

· In Asia, progress on re-opening economies had helped offset jitters over riots in US cities and unease over Washington's power struggle with Beijing. After a cautious start, Asian markets were led higher by China on signs parts of the domestic economy were picking up.

· Australian data to be released today with the central bank decision may indicate whether the country is likely to have two consecutive quarters of economic contraction: its first technical recession in almost three decades. The RBA may hold both the cash rate and bond-yield target at 0.25% on Tuesday. It bought government securities on only two days in May.

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