Morning Bid: Markets in upbeat mood as factories hum

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Share markets have opened the week on a positive note, buoyed by encouraging signs of increased factory activity in Asia. China’s main factory index reached a two-year high according to the private Caixin survey. Japan experienced its first expansion in factory activity in a year, while South Korea saw its fastest pace of growth in two years. Additionally, South Korean markets received a boost from the discovery of potential significant oil and gas reserves off the country’s coast.

The agreement by OPEC+ on Sunday to extend most of its oil output cuts until 2025 has pushed oil prices higher. However, some cuts will begin to be reversed starting from October 2024.

Indian markets are keeping a close eye on the upcoming release of election results, which are expected to show Prime Minister Narendra Modi’s alliance securing a majority in parliament. This outcome has sparked speculation that it will lead to increased economic reforms.
BofA analysts expressed optimism about the future, highlighting that India’s working-age population is expected to continue growing until 2048, unlike developed markets and China where it has already peaked.

They stated, “We anticipate that India will be the second largest driver of global growth for the next decade. It is the only major equity market, aside from the U.S., that has consistently shown strong returns.”

In Mexico, the ruling party declared Claudia Sheinbaum the clear winner of the presidential election, with a significant margin of victory, after polls closed on Sunday.

The focus of the upcoming week will be on interest rates, as the European Central Bank is highly likely to reduce rates by a quarter point to 3.75% on Thursday. This would be the first time the ECB has eased rates ahead of the U.S. Federal Reserve.

Market expectations also indicate an 80% chance of the Bank of Canada cutting rates at its meeting on Wednesday, and a projected 59 basis points of easing throughout the year. However, analysts remain hopeful for even deeper rate cuts.
Here are the important events that may impact the markets on Monday:

  • The final May Purchasing Managers’ Index (PMI) reports for the European Union, Germany, France, and the United Kingdom.
  • The release of the U.S. Institute for Supply Management (ISM) manufacturing index, S&P Global U.S. manufacturing PMI, and construction spending data for April.