Morning Bid: Agitated markets wary of June heat

A look at the day ahead in U.S. and global markets from Mike Dolan

This week's bout of bond market anxiety eased a touch on Thursday, but investors wary of heavy sovereign debt sales and election uncertainty are bracing for a jumpy June.

And the dollar is lapping it all up.

At the root of the week's angst has been more evidence of still-brisk U.S. economic growth and sticky worldwide inflation that questions the degree of interest rate cuts ahead that have been long-assumed by markets. Jobless updates and a GDP revision top today's diary.

And as the Federal Reserve and other central banks turn incrementally more hawkish, they're complicating the heavy debt auction schedules for many governments over the month ahead.

This week has seen a blizzard of new Treasuries and signs of some indigestion were evident in tepid demand for near $300 billion of notes and bonds sold on Tuesday and some $44 billion of 7-year paper yesterday.

The combination of rates worries and debt sales has taken its toll. U.S. 10-year yields topped 4.75% on Wednesday for the first time in four weeks, though they have pulled back a touch from that level ahead of today's U.S. open.

And despite a European Central Bank rate cut being a nailed-on certainty for next week, the jump back in long-term yields spread to Europe too. Euro zone benchmark German 10-year yields hit another six-month high on Thursday with above-forecast German annual inflation numbers for May cause for concern ahead of Friday's euro-wide readout and dragging full-year ECB easing bets lower.

All of which makes an uncomfortable backdrop to what's set to be the heaviest month of the year for net sovereign debt issuance. New government bond supply net of redemptions and central bank purchases is due to rise to $340 billion in June for the United States, euro zone and Britain, according to data from lender BNP Paribas.

The European debt world is also keeping tabs on credit rating updates for Italy, France, Greece and Ireland due tomorrow.

The latest bond market judder has spilled over to equity markets again, dragging Wall St stocks back from new highs on Wednesday and weighing on stocks across Asia earlier too.

S&P500 futures remained in the red first thing on Thursday - with implied volatility for the next month jumping back close to 15 for the first time since May 2.

What's more that month ahead now captures a wave of electoral uncertainty - the first televised U.S. presidential debate on June 27, European Parliament elections on June 6-9, India's election result next week, this weekend's Mexican elections and the run-up to UK elections on July 4.

South Africa's rand fell 1% on Thursday and the country's benchmark equity index dropped more than 2% after early election results there showed the African National Congress on course to lose the parliamentary majority it has held for 30 years - ushering in an uncertain period of messy coalition building.

In company news, Salesforce forecast second-quarter profit and revenue below Wall Street estimates on Wednesday due to weak client spending on its cloud and enterprise business products, sending its shares down more than 16% after the bell.

Top U.S. independent oil and gas producer ConocoPhillips agreed to buy Marathon Oil for $22.5 billion, the latest in a series of mega-deals in the energy industry. Shares of Marathon Oil rose 9% on Wednesday while ConocoPhillips fell 4%.

BHP's investors welcomed the top global miner's decision to walk away from a $49 billion plan to take over Anglo American, which rejected three proposed offers from its bigger rival over the past six weeks.

And Saudi Arabia may announce a landmark secondary share offering in oil giant Aramco later on Thursday, pending final approval, people with knowledge of the matter said.

Key diary items that may provide direction to U.S. markets later on Wednesday:

* U.S. second estimate of Q1 GDP and PCE, preliminary Q1 corporate profits, weekly jobless claims, April international trade balance, April wholesale/retail inventories, April pending home sales

* Dallas Federal Reserve President Lorie Logan and New York Fed chief John Williams speak; Bank of England Governor Andrew Bailey speaks; European Central Bank policymaker and Irish Central Bank chief Gabriel Makhlouf speaks; Reserve Bank of New Zealand governor Adrian Orr speaks

* South Africa Reserve Bank policy decision

* NATO foreign ministers hold informal meeting in Prague

* US Treasury sells 4-week bills

* US corporate earnings: Costco, Best Buy, Dollar General, Hormel Foods, Ulta Beauty, NetApp, Cooper Companies

(By Mike Dolan, editing by Nick Macfie. mike.dolan@thomsonreuters.com)