June S&P 500 futures (ESM23) are trending down -0.33% this morning after three major U.S. benchmark indices finished the regular session solidly lower as worries about a potential U.S. default hurt risk sentiment, while market participants also waited for minutes from the Federal Reserve’s last meeting.
Representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling talks on Tuesday. House Speaker Kevin McCarthy left the U.S. Capitol late Tuesday afternoon, stating that the two parties were still unable to reach an agreement to prevent the first-ever U.S. default. In addition, following a two-hour meeting in the Capitol with White House counterparts, Republican Representative Garret Graves, one of McCarthy’s chief negotiators, suggested that the two sides were at a standoff.
“We believe the U.S. debt default risk to be low, as both political parties have strong incentives to raise the debt ceiling, but the rekindled debate will likely increase volatility in both fixed income and equity markets,” Wells Fargo said in a note.
In Tuesday’s trading session, the tech-heavy Nasdaq 100 underperformed major benchmarks, pressured by a drop in mega-cap technology stocks after another round of debt ceiling talks ended without any progress toward a deal. Also, the benchmark S&P 500 closed deep in red territory, weighed down by losses in industrial and communication stocks. Limiting the downside on Tuesday, regional bank stocks gained ground, underpinned by an over +7% gain in PacWest Bancorp (PACW) after the lender announced Monday it would sell $2.6 billion of loans to shore up its liquidity. Also, the blue-chip Dow slightly outperformed the other two averages, helped by a more than +2% rise in shares of Chevron (CVX), as some investors perceived the company’s price for its acquisition of PDC Energy as particularly cheap.
Economic data on Tuesday showed U.S. S&P Global Composite PMI unexpectedly rose to a 13-month high of 54.5 in May, stronger than expectations of 50.0, driven by the service providers while manufacturing activity contracted. Also, U.S. April New Home Sales rose to a more than 1-year high of 683K, stronger than expectations of 663K. At the same time, U.S. Richmond Manufacturing Index came in at -15 in May, weaker than expectations of -8.
Minneapolis Fed President Neel Kashkari said Tuesday that the Federal Reserve might need to keep interest rates high for longer if inflation becomes “more entrenched.” “If inflation stays high, if inflation became more entrenched than we realized, then we’re going to have to keep interest rates high for longer, and that’s going to increase the pressures on the banking sector,” Kashkari said.
U.S. rate futures have priced in a 67.3% probability of no hike and a 32.7% chance of a 25 basis point rate increase at the next central bank meeting in June.
Meanwhile, big-name companies like NVIDIA Corporation (NVDA), Analog Devices (ADI), and Snowflake (SNOW) are set to report their quarterly figures today.
Today, market participants will be closely watching the release of the Federal Reserve’s minutes from the May meeting for further insight into the central bank’s perspective on the economy and any potential future monetary policy actions.
Also, investors are likely to focus on U.S. Crude Oil Inventories data. Economists estimate this figure to come in at -0.920M, compared to last week’s value of +5.040M.
In addition, investors will be looking toward a speech from Fed Governor Christopher Waller.
In the bond markets, United States 10-Year rates are at 3.691%, down -0.13%.
The Euro Stoxx 50 futures are down -1.24% this morning as investors digested a hotter-than-expected U.K. inflation print, while an impasse in negotiations over raising the U.S. debt ceiling also dampened risk sentiment. Data on Wednesday showed U.K. headline inflation fell less than expected in April, while core inflation unexpectedly rose to a 31-year high. Losses in real estate and luxury stocks are leading the overall market lower. Meanwhile, Bundesbank President Joachim Nagel said Tuesday that the European Central Bank would need more interest rate increases to bring inflation under control. In corporate news, Marks and Spencer Group Plc (MKS.LN) surged over +11% after the retailer reported upbeat full-year results and outlined plans to resume dividend payments.
U.K.’s Core CPI, U.K.’s CPI, Germany’s Ifo Business Climate Index, Germany’s Business Expectations, and Germany’s Current Assessment data were released today.
U.K. April Core CPI stood at +1.3% m/m and +6.8% y/y, stronger than expectations of +0.8% m/m and +6.2% y/y.
U.K. April CPI has been reported at +1.2% m/m and +8.7% y/y, stronger than expectations of +0.8% m/m and +8.3% y/y.
The German May Ifo Business Climate Index came in at 91.7, weaker than expectations of 93.0.
The German May Business Expectations stood at 88.6, weaker than expectations of 91.9.
The German May Current Assessment was at 94.8, stronger than expectations of 94.7.
Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -1.28%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.89%.
China’s Shanghai Composite closed lower today as geopolitical risks continued to weigh on investor sentiment. China and Russia plan to sign a series of bilateral agreements on Wednesday during the Russian prime minister’s trip to Beijing, despite criticism from the West regarding their ties amid the ongoing war in Ukraine. Also, tensions between China and the U.S. heated up after Beijing recently banned Micron Technology from selling memory chips to key domestic industries over security concerns, drawing ire from U.S. officials. China’s new energy and semiconductor stocks outperformed on Wednesday, while bank stocks continued to decline as the state-owned enterprises’ revaluation theme was losing momentum. Hong Kong-listed tech stocks also slumped, with Alibaba Group Holding Ltd falling over -2%. Meanwhile, foreign investors continued to sell mainland shares after they offloaded over $1 billion via the Stock Connect scheme on Tuesday.
Japan’s Nikkei 225 Stock Index closed lower today, falling for a second day as investors continued to lock in profits following a recent eight-day rally, while uncertainty over the U.S. debt ceiling also weighed on risk appetite. Meanwhile, Japanese travel and retail stocks plunged on Wednesday amid concerns over China’s latest Covid wave and a potential slowdown in the U.S. economy. In other news, shares of Uniqlo operator Fast Retailing Co slid over -2% following a report that the company might sell off its shuttered stores in Russia. In addition, SoftBank Group fell more than -2% after S&P Global Ratings downgraded the long-term rating of the technology and investment conglomerate. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 3.85% to 19.71.
“Concerns over the U.S. debt ceiling issue have the potential to weigh on the global stock market, not just in America,” said Kazuo Kamitani, an equity strategist at Nomura Securities.
Pre-Market U.S. Stock Movers
Urban Outfitters Inc (URBN) surged more than +12% in pre-market trading after the mall retailer reported upbeat Q1 results.
Palo Alto Networks Inc (PANW) climbed over +4% in pre-market trading after the company reported better-than-expected Q3 results, posted solid Q4 guidance, and raised its FY23 adjusted EPS outlook.
Toll Brothers Inc (TOL) gained over +3% in pre-market trading after the homebuilder posted upbeat Q2 results and raised its full-year guidance.
Agilent Technologies Inc (A) plunged more than -9% in pre-market trading after the company reported better-than-expected Q2 results but issued downbeat FY23 revenue and EPS guidance.
Intuit Inc (INTU) slid over -5% in pre-market trading after the company reported mixed Q3 results and guided for below-consensus EPS in Q4.
First Horizon National Corporation (FHN) rose more than +2% in pre-market trading after Jefferies upgraded the stock to buy from hold.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Wednesday - May 24th
NVIDIA (NVDA), Analog Devices (ADI), Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Snowflake (SNOW), Splunk (SPLK), U-Haul Holding (UHAL), Xpeng (XPEV), Nutanix (NTNX), Futu (FUTU), ELF Beauty (ELF), Enersys (ENS), Petco Health and Wellness (WOOF), Stepstone (STEP), American Eagle Outfitters (AEO), Kohl’s Corp (KSS), Liveramp (RAMP), SGHC Limited (SGHC), Zuora (ZUO), Abercrombie&Fitch (ANF), Modine Manufacturing (MOD), Photronics (PLAB), Dorian LPG Ltd (LPG), Guess (GES), Zhihu (ZH), Shoe Carnival (SCVL), Americas Car-Mart (CRMT), Lilium NV (LILM), Red Robin Gourmet Burgers (RRGB), GigaCloud Technology (GCT), Kamada (KMDA).
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