June S&P 500 futures (ESM23) are up +0.23%, and June Nasdaq 100 E-Mini futures (NQM23) are up +0.11% this morning after three major U.S. benchmark indices finished the regular session lower as market participants worried about whether the outcome of the U.S. debt ceiling talks would result in staving off a historic default.
On Tuesday, discussions regarding the U.S. debt ceiling between President Joe Biden and bipartisan Congressional leaders did not result in significant advancements. House Speaker Kevin McCarthy said after an hour of talks that the two sides remained “far apart” on an agreement to raise the federal borrowing limit. But he said, “It’s possible to get a deal by the end of the week. It’s not that difficult to get to an agreement.” The White House described the talks as “productive and direct.” Also, a source familiar with the president’s plans said President Biden would cut short an Asia trip this week, returning Sunday to Washington for negotiations with Republicans to avert a potentially catastrophic U.S. debt default.
In Tuesday’s trading session, the blue-chip Dow underperformed major benchmarks and hit a 1-1/2 week low as Home Depot Inc (HD) dropped more than -2% after reporting weaker-than-expected Q1 net sales and lowering its annual comparable sales forecast. Energy stocks also weighed on the broader market as soft Chinese economic data overshadowed a forecast of higher global demand from the International Energy Agency.
Economic data on Tuesday showed that U.S. retail sales came in at +0.4% m/m in April, weaker than expectations of +0.8% m/m, pointing to consumer spending pullback. At the same time, U.S. core retail sales stood at +0.4% m/m in April, in line with expectations. Also, U.S. April industrial production rose +0.5% m/m, stronger than expectations of -0.1% m/m.
“Right now, markets are jockeying over the next Fed easing cycle. Wall Street continues to see rate cuts happening in the latter half of this year, and with the Fed being data dependent, investors are anticipating the weak data will force the Fed’s hand,” said Sam Stovall, a chief investment strategist of CFRA Research.
Richmond Fed President Thomas Barkin said Tuesday that he would be comfortable with more interest rate hikes if it’s necessary to bring inflation down. “And if more increases are what’s necessary to do that, I’m comfortable doing that,” Barkin said. Also, Cleveland Fed President Loretta Mester expressed her belief Tuesday that the Federal Reserve is not yet at a point where it can hold rates steady. “I need to see more evidence that inflation is still moving down,” she said.
U.S. rate futures have priced in a 78.6% probability of no hike and a 21.4% chance of a 25 basis point rate increase at the next central bank meeting in June.
Meanwhile, big-name companies like Target Corporation (TGT), Cisco (CSCO), and TJX (TJX) are set to report their quarterly figures today.
Today, all eyes are focused on the U.S. Building Permits preliminary data in a couple of hours. Economists, on average, forecast that April Building Permits will stand at 1.437M, compared to the previous value of 1.430M.
Also, investors are likely to focus on U.S. Housing Starts data, which was at 1.420M in March. Economists foresee the April figure to be 1.400M.
U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to come in at -0.920M, compared to last week's value of +2.951M.
In the bond markets, United States 10-Year rates are at 3.532%, down -0.45%.
The Euro Stoxx 50 futures are down -0.05% this morning as investors digested the final Eurozone inflation print for April, while concerns about a standoff in U.S. debt-ceiling talks also weighed on sentiment. Eurostat said on Wednesday that Eurozone headline inflation accelerated in April as rising services and energy costs offset a slowdown in food price growth. In corporate news, shares of Euronext (ENX.FP) fell more than -3% after the exchange operator posted a drop in first-quarter revenue and income. In other news, London Stock Exchange Group Plc (LSEG.LN) plunged over -3% after a consortium of investors, including Blackstone Inc. and Thomson Reuters Corp., sold shares in the group.
Eurozone’s CPI and Eurozone’s Core CPI were released today.
Eurozone April CPI has been reported at +0.6% m/m and +7.0% y/y, compared to expectations of +0.7% m/m and +7.0% y/y.
Eurozone April Core CPI stood at +1.0% m/m and +5.6% y/y, in line with expectations.
Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.21%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.84%.
China’s Shanghai Composite today closed lower as a deluge of weak economic readings for April weighed on sentiment, causing some economists to lower their growth predictions for the country. Barclays economists slashed China’s 2023 GDP forecast to 5.3% from 5.6% amid “concerns around the sustainability of the recovery in housing and consumption.” Meanwhile, heavyweight China’s property stocks lost ground on Wednesday after data indicated the country’s house prices dropped for an eleventh consecutive month in April.
“Beijing may have to introduce a new round of supportive measures in the second half of the year, including cutting benchmark lending rates to bolster growth,” said Ting Lu, a chief China economist at Nomura.
At the same time, Japan’s Nikkei 225 Stock Index closed higher today, hitting a 20-month high as a weaker yen buoyed export-oriented stocks while momentum from a strong earnings season continued to boost sentiment. Data on Wednesday showed that the Japanese economy grew faster than expected in the first quarter, helped by strong consumer spending and inbound tourism. Also, Japan’s Economy Minister Shigeyuki Goto said Wednesday the country’s nominal GDP reached a record 570.1 trillion yen. Meanwhile, chip-related stocks extended their gains on Wednesday, with Tokyo Electron Ltd and Advantest Corp gaining more than +3%. Also, Screen Holdings Co Ltd climbed over +3% after Tokai Tokyo Securities raised its price target on the stock. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 7.15% and hit a new 1-month high of 17.24.
The Japanese GDP stood at +0.4% q/q and +1.6% y/y in the first quarter, stronger than expectations of +0.1% q/q and +0.7% y/y.
The Japanese March Industrial Production came in at +1.1% m/m, stronger than expectations of +0.8% m/m.
Pre-Market U.S. Stock Movers
Western Alliance Bancorporation (WAL) climbed more than +8% in pre-market trading after the Phoenix-based bank said its quarter-to-date deposit growth exceeded $2B as of May 12th.
Evgo Inc (EVGO) plunged over -6% in pre-market trading after the company commenced an underwritten public offering of $125M of Class A common stock.
Container Store Group Inc (TCS) tumbled about -18% in pre-market trading after the company reported mixed Q4 results and issued downbeat Q1 and FY24 guidance.
Doximity Inc (DOCS) slid over -10% in pre-market trading after the company reported upbeat Q4 results but posted weaker-than-expected Q1 and FY24 guidance.
Wynn Resorts Limited (WYNN) rose more than +2% in pre-market trading after Barclays upgraded the stock to overweight from equal weight.
You can see more pre-market stock movers here
Today’s U.S. Earnings Spotlight: Wednesday - May 17th
Cisco (CSCO), TJX (TJX), Target (TGT), Synopsys (SNPS), ZTO Express Cayman (ZTO), Take-Two (TTWO), StoneCo (STNE), Dlocal (DLO), Wix.Com Ltd (WIX), ViaSat (VSAT), Bowlero (BOWL), Arcos Dorados (ARCO), FinVolution Group (FINV), Hawkins (HWKN), Walkme (WKME), Riskified (RSKD), Triumph (TGI), EDAP (EDAP), Innoviz Technologies (INVZ), IBEX (IBEX), Arbe Robotics (ARBE).
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