Dubai: As all major US and most other equity indexes rallied to end the month of May, investors will keep an eye out for some more key economic figures to be released in different parts of the world.
This week will bring the May unemployment report in the US, several key reports on global manufacturing, and US mortgage applications for May. Recent strong US economic data, the world’s largest economy and oil consumer, has buoyed risk appetite.
According to Dow Jones, economists expect Friday’s employment report to show the creation of about 674,000 jobs in May, after the disappointing 266,000 jobs added in April – a quarter of what economists had expected.
June to end higher?
As stocks enter the often weak month of June, stocks are finishing May with a mixed performance. Big cap indexes like the S&P 500 and Dow notched gains.
The US key stock market benchmark, the S&P, rose a half per cent, and the Dow rose 1.9 per cent. The small cap Russell 2000 was flat, up 0.1 per cent, and the tech-heavy Nasdaq declined 1.5 per cent.
Historically, June is not a particularly positive month for stocks. Research shows that over the past 50 years, the Dow has gained just 0.1 per cent in June and has ended higher for nearly half the month.
But over the past 20 years, June was far weaker, gaining only 40 per cent of the time. June’s performance is tied with September as the worst month of the year, with an average Dow decline of 0.7 per cent.
US Fed meets in June
Looking ahead into the month of June, the US Federal Reserve is expected to meet June 15-16, and already market analysts are anticipating it will be the most important event of the month.
Fed officials have emphasized that they will keep policy easy as they watch to see signs that the world’s largest economy is definitely on the rebound path, while evaluating that higher inflation readings are temporary, since the data is being compared with a weak period last year.
Analysts view for the stock markets what is key is whether the Fed is starting to believe that inflation is higher than it expected or that the economy is strengthening enough to progress without so much monetary support.
Change in Fed stance?
Fed officials have said they would consider discussing tightening quantitative easing if they see signs of improvement, and that would be a first step toward interest rate hikes, not expected until at least 2023. If inflation gets too high, the next step is to raise interest rates.
Analysts further view that the prospect of higher interest rates will make stock market investors jittery, since it would mean higher costs for companies and that investors could possibly choose higher-yielding bond investments over stocks.
US stocks were poised for further gains this coming week after reports that President Joe Biden will seek $6 trillion in federal spending for the 2022 fiscal year in budget proposals later.
A Reuters poll of around 300 analysts this week showed most see world stocks continuing to rise this year on robust economic and earnings recoveries, although any serious quickening of inflation would temper enthusiasm.
European stocks rising
On Friday, European stocks hit a new record high as they opened in London, Frankfurt and Paris. Tokyo had leapt more than 2 per cent overnight and the 50-country MSCI world index was now nearly 90 per above its COVID lows.
European shares rose to a record high on Friday as British-exposed financial stocks gained following a hawkish comment from a Bank of England official, with the prospects of increased US fiscal spending boosting market sentiment.
The pan-European STOXX 600 index rose 0.6 per cent to a record high of 448.98 points and added 1 per cent this week. The Europe-only STOXX index and the European blue chip index added about 0.7 per cent each, trading just below multi-year highs.
Banks drive Europe’s gains
Bank stocks rose 0.4 per cent to a 15-month high, tracking a rise in euro zone bond yields. British lenders, including HSBC, led the gains after a Bank of England policymaker suggested an earlier-than-signalled hike in lending rates.
Gains in British-exposed stocks supported the insurance and financial services sectors, which were the best performing sectors for the day.
Optimism over economic growth has supported European stocks this year, with several economies loosening their COVID-19 curbs against the backdrop of a steady vaccination campaign.