[1/2] A man walks past an electric monitor displaying Japan's Nikkei share average and recent movements, outside a bank in Tokyo, Japan, June 5, 2023. REUTERS/Issei Kato

  • STOXX up 0.1%, dollar elevated
  • Oil prices trim gains after Saudi's big cuts to output
  • Markets wager Fed to pause in June, see risk of July hike

NEW YORK/LONDON, June 5 (Reuters) - World stock markets were little changed and the dollar edged up on Monday as investors priced in reduced odds of a June rate hike by the Federal Reserve after an encouraging U.S. jobs report, while oil prices jumped after Saudi Arabia pledged big output cuts.

The benchmark S&P 500 Index (.SPX) edged up 0.1%, while the Dow Jones Industrial Index (.DJI) and the Nasdaq Composite Index (.IXIC) were little changed.

The key European STOXX index (.STOXX) nudged 0.15% lower, compared to a 0.22% gain in MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS).

Japan's Nikkei (.N225) had earlier surged 2.1% to stand above 32,000 for the first time since July 1990.

While markets failed to resume last week's rally, the U.S. data released on Friday showing wage pressures easing and the unemployment rate climbing off a 53-year low gave hope that the Fed is making further progress against inflation.

Investor expectations that the Fed is gaining ground in its fight against inflation will help support the U.S. S&P 500, which some analysts say is flashing "bullish signals."

"The SPX cleared 4,200 last week to break out from an early February into early June bullish cup and handle," said Stephen Suttmeier, technical research strategist at Bank of America Securities.

"This favors new 52-week highs above the August 2022 peak at 4,325 and projects further upside into the 4,500s."

Oil prices, which have recently come under pressure amid heightened concerns about China's slowing economy, rose after Saudi Arabia announced it would cut its output to 9 million barrels per day in July, from around 10 million bpd in May, the biggest reduction in years.

Brent oil rose 1.44% to $77.23 a barrel, while U.S. crude climbed 1.55% to $72.82 a barrel, after hitting a session high of $75.06.

"With Saudi Arabia protecting oil prices from sliding too low ... we think oil markets are now more prone to a shortfall later this year," said Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank of Australia.

"We think Brent futures will rise to $85 by Q4 2023 even with a tepid demand recovery in China factored in."


Data on Friday showed the U.S. economy added 339,000 jobs last month, higher than most estimates, but moderating wage growth and the rising jobless rate led markets to price a 75% chance of no change in Fed rates in June, according to the CME FedWatch tool.

That would be broadly positive for stocks, albeit there is about a 70% probability that the fed funds rate would reach 5.25-5.5% or beyond at the policy meeting in July, if U.S. inflation remains elevated. Conversely, markets now see little chance of a rate cut by the end of this year.

Treasury yields pulled back from highs on Monday. Yields on U.S. two-year Treasuries retreated to 4.4409%, after surging 16.2 bp on Friday, and 10-year yields edged down to 3.6582%, after a rise of 8 bps on Friday.

Fitch Ratings said the United States' "AAA" credit rating would remain on negative watch, despite the debt agreement.

The U.S. dollar was at 103.99 against its major peers on Monday, after gaining 0.5% on Friday on the jobs report. The greenback eased 0.4% on the Japanese yen to 139.395 while the euro was unchanged at $1.0717.

Central banks from Australia and Canada will meet this week. Markets see a sizeable chance - about 40% - that the RBA could surprise with a quarter-point hike on Tuesday, after a minimum wage hike that economists feared could further stoke inflationary pressures.

The Bank of Canada will meet on Wednesday. A majority of economists polled by Reuters expect the BOC to keep interest rates on hold at 4.5% for the rest of the year although the risk of one more rate rise remains high.

Additional reporting by Stella Qiu, Editing by Chizu Nomiyama and Bernadette Baum

Our Standards: The Thomson Reuters Trust Principles.

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