Stocks Set to Open Higher as Investors Await Powell Speech, Debt Ceiling Optimism Lifts Sentiment

Oleksandr Pylypenko - Barchart - Mon May 15, 2023

June S&P 500 futures (ESM23) are up +0.39%, and June Nasdaq 100 E-Mini futures (NQM23) are up +0.32% this morning as market participants awaited an update on plans to raise the U.S. debt ceiling while bracing for a key speech from Fed Chair Jerome Powell.

In Friday’s trading session, Wall Street’s major averages closed moderately lower, with the blue-chip Dow dropping to a 1-week low. Consumer stocks were the biggest drag on the market as a more-than-expected drop in the University of Michigan’s gauge of consumer sentiment raised concerns over discretionary consumer spending. Financial stocks also slumped amid renewed fears about the stability of regional lenders, with Lincoln National (LNC) dropping over -4% and PacWest Bancorp (PACW) falling about -3%. On the positive side, First Solar Inc (FSLR) jumped over +26% and was the top percentage gainer on the S&P 500 after the company agreed to acquire Sweden’s thin film maker Evolar AB.

The University of Michigan’s preliminary reading on Friday showed that the U.S. consumer sentiment index dropped to a 6-month low of 57.7 in May, weaker than expectations of 63.0, while 5-year inflation expectations unexpectedly rose to a 12-year high of 3.2% in May from 3.0% in April.

“Lack of confidence in the economy is translating to a retreat to the safer dollar and is also causing pessimism about oil demand,” said John Kilduff, a partner at Again Capital LLC.

Fed Governor Michelle Bowman said Friday that the Fed will probably need to raise interest rates further if inflation remains high and the labor market tight.

U.S. rate futures have priced in a 78.8% probability of no hike and a 21.2% chance of a 25 basis point rate increase at the next central bank meeting in June.

Meanwhile, discussions between President Joe Biden and lawmakers are expected to resume on Tuesday after being postponed on Friday. President Joe Biden said on Sunday that he remains “optimistic” about finding an agreement with his Republican opponents to raise the nation’s debt limit and avoid a default. The Congressional Budget Office warned on Friday that the U.S. might face a high risk of defaulting in the first two weeks of June if the lawmakers do not increase the $31.4 trillion debt ceiling.

In the coming week, investors will be monitoring a spate of economic data, including U.S. Retail Sales, Core Retail Sales, Industrial Production, Manufacturing Production, Business Inventories, Building Permits (preliminary), Housing Starts, Crude Oil Inventories, Initial Jobless Claims, Philadelphia Fed Manufacturing Index, and Existing Home Sales.

Also, market participants will be closely watching the speech by Federal Reserve Chair Jerome Powell on Friday for more insight into the future path of interest rates. In addition, several other Fed officials will be making appearances this week, including Bostic, Kashkari, Barkin, Cook, Mester, Williams, Logan, Jefferson, and Bowman.

Today, all eyes are focused on the U.S. NY Empire State Manufacturing index in a couple of hours. Economists, on average, forecast that the May NY Empire State Manufacturing index will come in at -3.70, compared to the previous value of +10.80.

In the bond markets, United States 10-Year rates are at 3.476%, up +0.36%.

The Euro Stoxx 50 futures are up +0.32% this morning as investors assessed the results of the earnings season as well as the outlook for monetary policy. Meanwhile, gains in mining stocks are leading the overall market higher. A Bloomberg survey conducted May 5-11th showed that the European Central Bank will hold interest rates at their peak for longer than previously thought amid sticky core prices, with the first cut anticipated in the second quarter of 2024. On the earnings front, Axa Sa (CS.P.DX) rose over +2% after Europe’s second-biggest insurance company reported a 2% growth in first-quarter sales and provided a new profitability target for the year.

Eurozone’s Industrial Production data was released today.

Eurozone March Industrial Production has been reported at -4.1% m/m and -1.4% y/y, weaker than expectations of -2.5% m/m and +0.9% y/y.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +1.17%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.81%.

China’s Shanghai Composite today closed higher after the People’s Bank of China kept its medium-term lending facility at 2.75%, in line with expectations, while injecting more long-term liquidity into the financial system. At the same time, expectations are rising that monetary policy easing may be inevitable in the coming months to shore up an economic rebound. Focus is now squarely on Chinese industrial production, retail sales, and fixed asset investment data due on Tuesday.

“A big year-on-year improvement shouldn’t surprise given it is measured against a stagnant economy that was in lockdown. However, with China’s data throwing up a few concerns of late - we’ve seen poor import, PPI, and loan data - China’s growth is very much at the heart of market moves,” said Chris Weston, a head of research at Pepperstone.

Japan’s Nikkei 225 Stock Index closed higher today, hitting an 18-month high as upbeat corporate earnings results boosted sentiment, while the yen’s weakness also lifted export-oriented stocks. Data released on Monday showed that Japan’s producer inflation eased more than expected in April. Meanwhile, shares of Shiseido Co Ltd climbed over +5% after the cosmetic maker reported a 97% jump in net profit for three months through March. Also, Asahi Group Holdings gained more than +3% after the beer maker’s quarterly net profit surged more than four times. In other news, Rakuten Group Inc plunged about -9% following a report that the e-commerce company was finalizing plans to raise about $2.2 billion by issuing new shares. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 1.02% to 15.78.

The Japanese April PPI stood at +5.8% y/y, weaker than expectations of +7.1% y/y.

Pre-Market U.S. Stock Movers

Neogames SA (NGMS) spiked about +120% in pre-market trading after Aristocrat Leisure Limited agreed to buy the lottery game technology company for $29.50 a share in an all-cash deal.

Magellan Midstream Partners LP (MMP) climbed over +8% in pre-market trading after ONEOK Inc (OKE) announced Sunday it agreed to acquire the company in a cash and stock deal valued at about $18.8B.

Aligos Therapeutics Inc (ALGS) surged more than +33% in pre-market trading after the company announced that it had entered into a research collaboration and development agreement with Xiamen Amoytop Biotech Co. Ltd.

Dupont De Nemours Inc (DD) rose over +2% in pre-market trading after Deutsche Bank upgraded the stock to buy from hold.

Albemarle Corp (ALB) gained about +2% in pre-market trading after Baird upgraded the stock to outperform from neutral.

Charles Schwab Corp (SCHW) rose more than +2% in pre-market trading after Raymond James upgraded the stock to outperform from market perform.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Monday - May 15th

Nu Holdings (NU), Xp (XP), TPG Inc (TPG), Monday.Com (MNDY), Catalent Inc (CTLT), Tower (TSEM), Rumble (RUM), Centerra Gold (CGAU), SFLoration Ltd (SFL), P10 Inc (PX), Danaos (DAC), FREYR Battery (FREY), Navitas Semiconductor (NVTS), Cymabay Therapeu (CBAY), Azul (AZUL), Mondee Holdings (MOND), Altus Power (AMPS), Mineralys Therapeutics (MLYS), Absolute Software (ABST), Yalla (YALA), Sohu.Com (SOHU), SNDL Inc (SNDL), Tingo Group (TIO), Sanara Medtech (SMTI), VOXX (VOXX), Canoo (GOEV), Terran Orbital (LLAP), Bitfarms (BITF), CorMedix (CRMD), Cara Therapeutic (CARA), Celcuity (CELC), Fulcrum Therapeutics (FULC), PDS Biotech (PDSB), United Insurances (UIHC), Workhorse Grp (WKHS), Gracell Biotechnologies (GRCL), Park City Group (PCYG), American Resources (AREC), Quest Resource (QRHC), Nauticus Robotics (KITT), Beam Global (BEEM).

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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.