Fed QT begins, OPEC+ solidarity battle, ISM PMI

© Reuters

Jeffrey Smith

Investing.com – The Fed’s quantitative tightening has begun. In Europe, manufacturing slowed to its weakest level in a year and a half as the war in Ukraine continued. President Joe Biden will send long-range artillery to Kyiv to help it stop a Russian advance in the east of the country. OPEC-Russia solidarity is starting to suffer, while inventories will drift ahead of the ISM manufacturing survey. Salesforce and HP maintained optimism with their quarterly reports.Here’s what you need to know in financial markets on Wednesday, June 1

1. QT started when Yellen admitted to misjudging inflation

The Fed’s balance sheet reduction policy kicks in today, although its impact may not be felt until June 15, when the Fed’s first bond holdings will be allowed to mature.

The process will draw as much as $47.5 billion a month out of the financial system, doubling in September to $95 billion a month, with financial conditions tightening further as official and market interest rates rise.

The presidents of the New York Fed and the St. Louis Fed are due to speak later, a day after President Joe Biden met with Chairman Jerome Powell to let him know exactly who is to blame for the coronavirus. Treasury Secretary Janet Yellen has arguably more honestly admitted to CNN that she was created by the pandemic stimulus package.

Outside the US, the key rate is expected to be raised by 50 basis points to 2%.

2. OPEC+ unity begins to break down

The solidarity of the OPEC+ alliance comes after the EU took steps to make it nearly impossible for Russia to comply with the group’s production deal.

The Wall Street Journal reported on Tuesday that some OPEC members are considering giving Russia a “waiver” from the deal, which could be a prelude to further output increases by other OPEC members. Longtime oil exporters such as Saudi Arabia and the United Arab Emirates — both of which have spare capacity — are uneasy about price levels that would destroy demand and accelerate the shift away from oil.

The past few days have seen some high profile diplomacy, with Russian Foreign Minister Sergey Lavrov visiting Saudi Arabia to lobby for continued unity. Meanwhile, Chinese President Xi Jinping had a phone call with his UAE counterpart, and the French government spoke with the Iraqi government about the possibility of raising production.

American Petroleum Institute’s U.S. inventories will expire at 4:30 p.m. ET, a day later than usual due to the Memorial Day holiday.

Futures fell as much as $5 a barrel at 6:30 a.m. ET before recovering nearly half of those losses.

3. Stocks will be volatile; Salesforce, HP optimistic; ISM eyes

U.S. stocks are set to open higher, but later in near-term ranges, as the first-quarter earnings season wraps up and markets are more influenced by trading in economic data.

The Institute for Supply Management will provide the most important data points Wednesday at 10 a.m. ET, along with the Labor Department’s monthly survey.

Stocks that could come into focus later include (NYSE: ) and (NYSE: ), both of which posted upbeat earnings and guidance after Tuesday’s close. Hewlett Packard Enterprise (NYSE: ) will report later.

4. European manufacturing damage; ECB rate hike debate bubble

European manufacturing expanded in May, hit by familiar factors such as soaring energy prices, supply chain problems originating in China and a blow to confidence from the war in Ukraine.

The euro zone manufacturing purchasing managers’ index compiled by S&P Global fell to its lowest point since December 2020, while its U.K. analog fell to its lowest since March 2021. Britain’s problems are compounded by the difficulties of Brexit: export orders fell for the eighth straight month in nine months.

The data came after a sharp overshoot in euro zone inflation in May, prompting two ECB officials to defy guidance given by the ECB’s top management on how quickly to raise interest rates. Austria’s Robert Holzmann and Slovakia’s Peter Kazimir both expressed willingness to raise the deposit rate by half a percentage point as early as July.

5. Biden sends rockets to Ukraine

U.S. President Joe Biden has confirmed the United States will send rockets to Ukraine, hoping to tip the balance in Kyiv’s favor after Russian troops have made steady battlefield gains in the Donbas region in recent days.

The United States will send its wheeled high-mobility rocket launcher system, or HIMARS, with a range of 48 miles. However, it gave up sending long-range systems out of concern that Ukraine would use them against Russian targets. The Kremlin has said it would be a major escalation of the conflict it began in February.

Ukrainian President Volodymyr Zelensky rejected suggestions that the country should trade land for peace with Russia in an interview with Newsmax that aired on Monday.