Gold rally, USD retreat, mergers and manufacturing PMI in focus

Stock markets around the world have stabilized to start the new week and month. The Dax is up 0.7% while the FTSE is closed for a holiday. Index futures for the Dow and S&P are up 0.1%. Generally speaking, the trading correction that knocked markets back over the last two weeks appears to have run its course, with overbought conditions easing back to neutral and support coming in near higher lows. May and June, however, have historically been two of the seasonally weaker months of the year for stocks so it’s possible this may be a pause in a bigger correction, it’s too early to say.

How markets react to this week’s flurry of economic data may give an indication of whether the rally that started back in February still has any legs left or not. Manufacturing PMI data out overnight has been mixed but showing a slight expansion on balance. Later this morning, Manufacturing PMI figures are due for the US and Canada. On Friday, Chicago PMI plunged but that figure has been more volatile and less reliable in the last several months.

Heading into these numbers, USD continues to weaken against pretty much everything except JPY which is giving back some of last week’s gains. Gold continues to take advantage of USD weakness challenging $1,300. This action suggests traders are expecting soft enough PMI payroll and PMI data to keep the hawks at the Fed at bay through June. This could change, however, if we were to see any positive surprises this week.

There are still a ton of earnings reports but the focus moves down to middle tier companies which can have more of an impact on specific stocks and less on broader index action. Two mergers are in the news giving the street good news and bad news. In Canada, BCE has agreed to acquire Manitoba Telecom for $40.00 per share in a friendly deal cash and share deal. BCE plans to divest one-third of MTS’s postpaid wireless subscribers to Telus to keep competition authorities happy. In the US, regulatory opposition has caused the merger proposal between oilfield service giants Halliburton and Baker Hughes to collapse over the weekend.

Dominion Bond Rating Service maintained its BBB(low) rating on Portugal’s debt keeping it as the only agency giving Portugal and investment grade rating. Had DBRS cut Portugal to junk status, the country would have lost access to QE support from the ECB, potentially creating even more problems for the beleaguered Eurozone. EUR is trading up slightly on the news.

Crude oil is trading slightly lower today with Brent is outpacing WTI to the downside. CAD is trading flat to down only slightly against other major currencies indicating the street sees this action as a normal pause so far. Energy stocks in Canada may also pause on this development, but metal miners may continue to attract attention with gold and copper both trending upward again today.  

Corporate News


BCE        has agreed to acquire Manitoba Telecom for $3.9B or $40.00 per share through a combination of cash and stock.

Halliburton    planned merger with Baker Hughes has apparently been called off      


Economic News

Significant announcements released overnight include:

Australia inflation            1.5% vs previous 1.7%
Australia commodity index        (9.4%) vs previous (15.4%)

Australia NAB business conditions    9 vs previous 12
Australia NAB business confidence    5 vs previous 6


Manufacturing PMI reports:

China                 50.1 vs street 50.3
China non-manufacturing    53.5 vs previous 53.8

Australia            53.4 vs previous 58.1
Japan                48.2 vs previous 48.0
India                50.5 vs previous 52.4

Germany            51.8 vs street 51.9
France                48.0 vs street 48.3
Italy                 53.9 vs street 53.0
Spain                53.5 vs street 53.0
Sweden            54.0 vs street 53.0
Norway                48.0 vs street 47.8
Eurozone            51.7 vs street 51.5

Upcoming significant announcements include:

9:30 am EDT        Canada RBC manufacturing PMI    previous 51.5
9:45 am EDT        US Markit manufacturing PMI        previous 50.8

10:00 am EDT        US ISM manufacturing PMI        street 51.4
10:00 am EDT        US ISM new orders            previous 58.3

10:00 am EDT        US construction spending        street 0.5%