By Peter Nurse
Investing.com -- Australia’s economy expands faster than expected, AMC AMC Entertainment soars and crude continues to push higher. Yet Wall Street looks set to start in a sluggish fashion and the Turkish lira falls to a fresh low. Here's what's moving markets on Wednesday, June 2nd.
1. Booming Australia
It may be the other side of the planet, but investors could do worse than taking a look at Australia’s economic fundamentals.
Its economy expanded faster than forecast in the first three months of the year, with its gross domestic product climbing 1.8% from the final quarter of 2020, when it rose a revised 3.2%, according to official data. Economists had forecast a first-quarter gain of 1.5%.
“The economic recovery in Australia is stronger than earlier expected and is forecast to continue,” Reserve Bank of Australia Governor Philip Lowe said Tuesday, after keeping its policies on hold.
Lowe also noted that there would be a news conference after the central bank's July 6 meeting, in a departure from its recent procedure, potentially setting the scene for a tapering of its ultra-loose monetary policy as the country's economy stages a recovery after plunging into a recession last year.
Australia’s rapid rebound has been underpinned by its ability to limit Covid-19 to isolated flare ups, boosting consumer and business confidence, but also by the global demand for the natural resources that the country has in abundance.
This was made clear Wednesday when Tesla (NASDAQ:TSLA) announced it expects to spend more than $1 billion a year on battery raw materials from Australia given the country's reliable mining industry and responsible production practices.
Robyn Denholm, chair of the U.S. carmaker, said Australia, which is rich in minerals used for batteries like lithium and nickel, is poised to benefit as developing supply chains for electric vehicle batteries and the green energy age focus on environmental, social and governance.
2. Stocks set for muted start; AMC Entertainment in fashion
U.S. stocks are set to open in a muted fashion Wednesday, following Tuesday’s quiet start to the month and ahead of the crucial employment report at the end of the week.
By 6:30 AM ET, Dow Jones futures were up 25 points, or 0.1%, S&P 500 futures were 0.1% lower and Nasdaq 100 futures dropped 0.1%.
The blue-chip Dow Jones Industrial Average gained just 0.1%, or 45 points, on Tuesday, while the broad-based S&P 500 broke a three-day winning streak to close just 2 points lower. The tech-heavy NASDAQ Composite dropped 0.1%, for its second losing day in three.
Investors are reluctant to move the dial too aggressively this holiday-shortened week, awaiting U.S. jobs data on Friday for confirmation of a solid recovery in the world's largest economy.
“Arguably the soft U.S. jobs report of just a 266k increase in April set the tone for the month of May. This allowed markets to look through Federal Reserve references to tapering, safe in the view that the central bank would not be hurried into a decision. This week’s release of the May jobs report also stands to set the tone for trading in June,” said analysts at ING, in a research note.
Despite the quiet action, there will still be a number of stocks that could see volatile trading Wednesday.
AMC (NYSE:AMC) stock will again be in focus after the Reddit favorite jumped 22% on Tuesday following the raising of just over $230 million through a stock sale.
Additionally, Zoom (NASDAQ:ZM) and Hewlett Packard (NYSE:HPE) will be in the spotlight after both filed encouraging quarterly results after the close Tuesday.
3. Lira hits record low
The Turkish lira slumped to a record low against the U.S. dollar earlier Wednesday after President Recep Tayyip Erdogan again called for lower interest rates despite high levels of inflation.
“I spoke with our central bank governor today. It’s an imperative that we lower interest rates. For that, we will reach July and August thereabouts so that rates can begin to fall,” the Turkish leader said in an interview with state broadcaster TRT late Tuesday.
By 6:30 AM ET, USD/TRY traded 1.1% higher at 8.6264, after climbing as high as 8.7795 earlier Wednesday following Erdogan’s remarks.
Erdogan has long held the unorthodox belief that lower borrowing costs will help slow inflation by lowering producers’ costs.
His comments can only increase the pressure on central bank Governor Sahap Kavcioglu, who was only installed in March after the previous governor incurred Erdogan’s wrath for tightening policy too much.
In the central bank’s inflation report briefing at the start of May, Kavcioglu noted that the current tight monetary stance will be maintained with “great determination and patience” until there is a sustainable improvement in the inflation outlook.
Turkish inflation accelerated for a seventh month in April, according to figures released in early May, with the annual inflation rate climbing to 17.1% from 16.2% the previous month, more than three times the official target of 5%.
4. Crude receives OPEC boost
Crude oil prices pushed higher still Wednesday, after OPEC and its allies expressed optimism of a strong recovery in demand in the U.S. and China, the globe’s two largest consumers of crude.
By 6:30 AM ET, U.S. crude was up 0.9% at $65.85 a barrel, after settling the previous session at its highest level since October 2018. Brent was up 0.8% at $69.06, after closing Tuesday above $70 for the first time since 2019.
The Organization of the Petroleum Exporting Countries and other top producers, including Russia, a grouping known as OPEC+, agreed on Tuesday to keep to their plan to gradually ease supply curbs through July.
In comments made after the meeting, Saudi Energy Minister Prince Abdulaziz bin Salman said that there was solid demand recovery in the U.S. and China, adding that the pace of vaccine rollouts "can only lead to further rebalancing of the global oil market".
Adding to the confidence surrounding the market was a breakdown in the talks between Iran and the global powers over potentially reviving a nuclear accord, which could have resulted in the lifting of oil sanctions against the Persian Gulf country.
It’s unclear if these talks will resume before Iran's June 18 presidential election, and thus the return of Iranian barrels to the global market does not appear to be an imminent issue.
Further on the supply side, U.S. crude oil inventories data from the American Petroleum Institute are due later in the session, with the official numbers from the U.S. Energy Information Administration due on Thursday, a day later than usual following the Memorial Day holiday at the start of the week.
On a separate note, the oil majors are still not spending enough on clean energy, according to the International Energy Agency, to help limit a dangerous rise in global temperatures.
The Paris-based autonomous intergovernmental organization expects traditional fossil-fuel companies to increase green investments to at least 4% of their capital spending, up from just 1% last year, according to a report Wednesday.
“Much greater resources have to be mobilized and directed to clean energy technologies to put the world on track to reach net-zero emissions by 2050,” said Fatih Birol, the IEA’s executive director.
5. The power of Musk
Step aside Warren Buffett, it seems retail investors have a new favourite - Elon Musk.
For years, every utterance from Buffett, the so-called Sage of Omaha, was eagerly grasped by the retail market as investment gold. The CEO of Berkshire Hathaway (NYSE:BRKa) will still have his fans, but Musk’s influence seems to be on the rise in this social media-dominated world.
Samsung Publishing (KS:068290) stock soared as much as 10%, to its highest level in more than a month, after Musk tweeted about the popular “Baby Shark” YouTube song, saying “Baby Shark crushes all! More views than humans,” with a video clip of the song attached.
Samsung (KS:005930) Publishing, which is based in Seoul, South Korea, owns almost 19% of the song’s producer SmartStudy.
The stock’s jump again illustrates the hold Musk, the CEO of Tesla, has on his followers, with his remarks having previously caused sharp movements in the likes of crypto currencies like Bitcoin and Dogecoin as well as so-called meme stocks.
That said, this sway also comes with responsibility, and the Wall Street Journal reported on Tuesday that the SEC told Tesla last year that Musk's use of Twitter had twice violated a settlement requiring his tweets to be preapproved by company lawyers.
The U.S. Securities and Exchange Commission had ordered the electric car maker to vet any material public communications Musk made regarding Tesla, following a tweet in August 2018 that he had "funding secured" to possibly take Tesla private in a $72 billion transaction.