This week ahead || Jun 5th

Debt ceiling done, Fed goes quiet: What to watch this week

In the week ahead, investors can expect a reprieve as strong jobs data, a signed deal to raise the borrowing limit, and the Federal Reserve's quiet period before its policy meeting provide some relief. The May jobs report showed over 300,000 job additions, signaling a resilient labor market. Meanwhile, Apple's Worldwide Developers Conference will unveil its mixed reality headset, attracting attention. AI stocks continued to rally, while cyclical sectors such as regional banking, industrials, and materials found favor. Despite positive indicators, some economists caution about a potential recession in the long term.

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Morgan Stanley Sees Shock 16% US Profit Drop Killing Stock Rally

Morgan Stanley predicts a sharp decline in corporate earnings, which they believe will halt the current US equity rally, going against more optimistic estimates on Wall Street. Instead, the investment bank recommends a bullish stance on equities in Japan, Taiwan, and South Korea, along with an overweight position in developed-market government bonds, including long-dated Treasuries, and the US dollar. Morgan Stanley's analysts foresee a drop in S&P 500 earnings per share this year, projecting $185 compared to the median prediction of $206. They expect revenue growth to slow and margins to contract, leading to disappointment in earnings. The bank also suggests defensive stocks and developed-market investment-grade bonds, as well as favoring additional tier-one securities over high-yield bonds for yield-seeking investors.

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Saudi pledges big oil cuts in July as OPEC+ extends deal into 2024

Saudi Arabia plans to significantly reduce its oil output in July as part of an extended OPEC+ deal to boost oil prices. The country's energy ministry announced that production would drop to 9 million barrels per day, the largest reduction in years. Saudi Arabia, which has ample spare capacity, aims to stabilize the market and prevent predictions about its actions. OPEC+ has agreed to extend production cuts until the end of 2024, aiming to defend a price floor and discourage speculators. The group also revised production targets, with some countries seeing reductions and others allowed to increase output. The market is expected to respond positively when it reopens.

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Asian shares extend global rally, oil rises after Saudi cuts

Asian stock markets continued their upward trend on Monday, buoyed by expectations that the Federal Reserve will pause its rate hikes and a pledge by Saudi Arabia to make significant oil output cuts. Oil prices rose, with Brent crude reaching $76.89 a barrel, supported by Saudi Arabia's production cut and the extended OPEC+ deal. The MSCI Asia-Pacific index outside Japan increased by 0.2%, while Japan's Nikkei surged 1.7%. However, China's blue-chip index underperformed. U.S. futures showed a slight dip after a strong rally on Friday, driven by a mixed U.S. jobs report and optimism about a rate pause. Treasury yields continued to rise, and the U.S. dollar remained strong. The central banks of Australia and Canada are scheduled to meet this week, with expectations of a possible rate hike from the RBA.

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