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Morning Bid: Jobs glow, crude pops, dollar lifts

Mar 18, 2023Mar 18, 2023

A look at the day ahead in U.S. and global markets from Mike Dolan

World markets retained a warm afterglow from Friday's shining U.S. employment reading, with only minor gains in crude oil prices on Saudi Arabia's output cut clouding the picture.

A forecast-busting May payrolls gain, coupled with signs of cooling wage growth, provided investors with a "soft landing" economic narrative that complemented relief over last week's government debt ceiling resolution.

With the Federal Reserve moving into a blackout period ahead of a June 14 policy decision, futures markets only see just over a one-in-four chance of another rate hike this month - though one final quarter point rise in July is still largely priced.

The combined picture was enough to lift the S&P500 (.SPX) and (.IXIC) Nasdaq to their highest in almost 10 months on Friday - with S&P futures retaining those gains ahead of Monday's open.

Remarkably, Wall St's "fear index", the VIX (.VIX) gauge of implied equity volatility, recorded its lowest close since before the pandemic hit more than three years ago.

While Big Tech stocks (.NYFANG) have led the way this year with gains of more than 65% - and Apple (.AAPL) coming within a whisker of reclaiming record highs last week - stock gains showed some sign of broadening at last.

The Russell 2000 (.RUT) Index of small cap stocks outperformed both the S&P500 and Nasdaq and is now up some 4% for the year so far.

MSCI's all-country index (.MIWD00000PUS) hit its highest in more than a year on Monday.

And the dollar climbed across the board.

While Brent crude oil prices popped up about $1 per barrel on the Saudi output cut plans, the move was limited and year-on-year crude losses continue to clock some 35%.

May U.S. service sector readings dominate the Monday diary, as does the likely start of Treasury rebuilding its depleted coffers with 3- and 6-month bill auctions. U.S. 2-year Treasury yields nudged higher to 3.75% on Monday.

Soundings from China's service sector earlier helped partly to offset fears that dour factory readings questioned its post-COVID recovery. European equivalents were more downbeat.

As midyear investment outlooks stream in, Morgan Stanley's global take sees developed market government bonds, Asia equities and the dollar all outperforming over the remainder of the year - but it spotlighted "front loaded" risk to growth, earnings and policy that make it something of a "crunch time".

Elsewhere, U.S. regulators are preparing to tighten rules for large banks, which could raise their capital requirements by 20% on average after a spate of midsize bank failures this year, the Wall Street Journal reported on Monday.

Turkey's lira slid almost 1% on Monday to weaken past 21 per dollar, in a shaky initial reaction to the appointment of highly-regarded Mehmet Simsek as finance minister.

Events to watch for later on Monday:

* U.S. ISM and S&P Global May service sector surveys, April factory goods orders

* European Central Bank President Christine Lagarde speaks to European Parliament; Cleveland Federal Reserve President Loretta Mester speaks at conference opening

* U.S. Treasury auctions 3- and 6-month bills

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