Five things you need to know before the market opens on Wednesday May 24:
1. -- Stock Futures Slip Lower As Debt Ceiling Concerns Weigh
Wall Street futures slipped lower Wednesday, while the dollar extended gains against its global peers and Treasury yields steadied, as markets around the world retrenched amid concern over a lack of progress in U.S. debt ceiling talks.
Risk sentiment faded quickly in the overnight session, and looks to bleed into today's trading on Wall Street, after lawmakers broke off debt ceiling talks late Tuesday without indicating that any progress has been made on finding spending cuts or tax increases that would allow for a Congressional vote to lift the $31.4 trillion debt ceiling.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.07% higher in overnight trading at 103.559, extending its six-week gain to around 2.5%, as investors looked for safe-haven assets amid the debt ceiling uncertainty.
That said, bond markets have remained largely sanguine amid the political drama in Washington, with foreign buyers taking down around 68.2% of yesterday's $42 billion 2-year note auction, the highest since 2009.
Benchmark 2-year note yield were marked 1.5 basis points lower from yesterday's auction levels of 4.3% to change hands at 4.285% in overnight trading, with 10-year notes pegged 2 basis points lower at 3.686%.
Stocks are likely to remain at least modestly volatile heading into the Treasury's June 1 debt ceiling deadline, at which point the U.S. could be at risk of default, with the market's main volatility gauge, the CBOE Group's VIX index, rising 11.5% in the overnight session to 19.2 points.
Heading into the start of the trading day on Wall Street, futures tied to the S&P 500 were indicating a 14 point opening bell decline while those linked to the Dow Jones Industrial Average were priced for a 122 point move to the downside. The tech-focused Nasdaq was looking at a 28 point dip.
European stocks traded firmly in the red, however, amid a broader 'risk off' mood linked to U.S. debt ceiling talks and a faster-than-expected reading for U.K. inflation, which slowed to 8.7% over the month of April but still topped economists' forecast of 8.2%, suggesting central banks around the world will continue to struggle in holding down consumer price pressures.
The region-wide Stoxx 600 was marked 1.6% lower in early Frankfurt trading, while Britain's FTSE 100 fell 1.59%.
2. -- Fed Minutes In Focus As Markets Seek Clarity On Rate Path
The Federal Reserve will publish minutes from its May policy meeting later today, with investors focused on signals from the discussions that suggest officials are prepared to pause, or even conclude, their recent rate hiking cycle.
The Fed, which raised its benchmark lending rate for a tenth consecutive meeting on May 3, said at the time that it would "determine" the need for additional increases, a noted change to its previous communications that said "some additional policy firming may be appropriate".
The shift in tone suggests the Fed will now be guided by incoming data, as opposed to a pre-determined path, in making its next interest rate decision on June 14.
The CME Group's FedWatch suggests markets are pricing in at least a 73% chance that the Fed will hold rates at between 5% and 5.25% next month in Washington, although bets on a summer rate hike haven't completely disappeared amid robust job figures, sticky inflation data both at home and from major economies around the world and an improving housing market.
"We would be very surprised to see any serious discussion of the potential for near-term rate cuts in the minutes," said Ian Shepherdson of Pantheon Macroeconomics. "But we are curious to see how many members pushed for a May pause, fretting about the potential impact of the banking crisis on growth."
3. -- Debt Talks At Impasse As Deadline Looms, Treasury Bill Yields Jump
U.S. lawmakers ended their last round of debt ceiling negotiations without an agreement late Tuesday, and offered no timetable for their next meeting with the deadline for a deal -- and a potential default -- just over a week away.
House Speaker Kevin McCarthy told reporters in Washington that "very good talks" took place between White House staffers, Democratic lawmakers and their Republican rivals, but added that little progress had been made on spending cuts or tax increases needed to reach a agreement on lifting the $31.4 trillion debt ceiling before the June 1 deadline suggested by Treasury Secretary Janet Yellen.
The perceived impasse has added to global market concerns over the potential for default, with Yellen noting that the U.S. could run out of cash to service its current debt obligations as early as next week, as investors demand an extra 60 basis points in yield on one-month Treasury bills, which are trading at a record high of 5.892%, compared to those maturing in July, to compensate for the added risk.
"Both sides have to understand that they're not going to get everything that they want," said White House Spokeswoman Karine Jean-Pierre. "And what we're trying to get to is a budget that is reasonable, that is bipartisan, that Democrats and Republicans in the House and Senate will be able to vote on and agree on.".
4. -- Nvidia Earnings On Deck As Investors Look to AI Impact On Chipmakers
Nvidia (NVDA) shares edged lower in pre-market trading ahead of the chipmaker's first quarter earnings expected after the closing bell.
Nvidia, which is expected to be a key player in the current AI chipmaking wave, is forecast to post April quarter earnings of 92 cents per share, a 33.8% slide from last year, on revenues of $6.52 billion.
The group's AI outlook, however, is likely to be the key investor focus following CEO Jensen Huang's suggestion that Nvidia's new AI "supercomputer", known as Nvidia DGX, could put Nvidia in a leadership position within a market that could be worth more than $600 billion.
Gartner, the management consultancy group, predicts so-called generative AI will account for around 10% of all data produced by the year 2025, up from just 1% in 2021. Analysts at KGI see this as adding between $5 billion and $6 billion to Nvidia's top-line revenue within the next three years.
Nvidia shares were marked 0.81% lower in pre-market trading to indicate an opening bell price of $304.70 each.
5. -- PacWest Shares Gain After Real Estate Lending Unit Sale
PacWest Bancorp (PACW) shares moved firmly higher in pre-market trading after the struggling west coast lender sold its property lending division to Roc360, a New York-based real estate financing firm.
Terms of the deal were not disclosed, but the sale follows a Monday statement from PacWest earlier this week suggesting it will offload around $2.6 billion in real estate construction loans to Kennedy-Wilson Holdings (KW) as part of an effort to bolster its balance sheet.
The swift sales have helped support not only PacWest shares, which have risen nearly 200% from their record lows earlier this month, but also a broader rally in regional bank stocks, with the KBW regional banking index up 10.7% since its May 11 low. Filings showing Western Alliance's (WAL) deposit base jumped by $2 billion over the six weeks ending on May 12 and billionaire investor Warren Buffett built a 9.92 million share stake in Capital One Financial (COF) as of the end of March, have also added to the recent rally.
PacWest shares were marked 6% higher in pre-market trading, indicating an opening bell price of $7.82 each.
