Geopolitical Issues But No Flight To Quality
STOCK INDEX FUTURES
Last week’s gains led the major stock indexes to their first back-to-back monthly advances since late 2019.
The 8:45 central time May PMI manufacturing Index is expected to be 39.8.
The 9:00 May Institute for Supply Management manufacturing index is anticipated to be 42.7 and the 9:00 April construction spending report is estimated to show a 5.5% decline.
Stock index futures have been performing well in spite of a variety of old and new geopolitical concerns.
Last week the U.S. dollar broke out to the downside falling to its lowest level since March 18.
The euro currency is higher, reflecting optimism over prospects of an E.U. recovery plan. Last week, the European Commission unveiled a EUR750 billion rescue package, which would be funded by bonds and repaid through future E.U. budgets.
The European Central Bank is expected to expand its bond purchasing program when its governing council meets on June 4. Also, on June 4 the ECB will release revised forecasts for inflation, which are likely to be lower.
The IHS Markit euro zone manufacturing purchasing managers’ index rose to 39.4 in May from 33.4 in April. The forecast was 39.5. A level below 50 indicates a contraction in activity.
The British pound is higher after a report showed U.K. manufacturing activity continued to shrink in May, although at a slower rate than initially estimated. The final IHS Markit/CIPS U.K. manufacturing purchasing managers’ index for May was revised to 40.7 from the preliminary estimate of 40.6, which is up from a record low 32.6 in April.
The E.U. and U.K. trade negotiating teams will continue post-Brexit trade discussions this week.
INTEREST RATE MARKET FUTURES
Despite a variety of increasing geopolitical tensions, there is no flight to quality buying today.
The next Federal Open Market Committee meeting is scheduled for June 9-10. According to financial futures markets there is a 98.6% probability that the FOMC will leave its fed funds rate unchanged at zero to 25 basis points.
The thirty-year Treasury bond futures are in a broadly based congestion pattern, as the main fundamental influences are offsetting.
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