Stock Index Futures Move Lower as U.S. Debt Ceiling Uncertainty Weighs on Sentiment, PMI Data in Focus

Oleksandr Pylypenko - Barchart - Tue May 23, 2023

June S&P 500 futures (ESM23) are down -0.14%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.02% this morning as the U.S. debt ceiling impasse kept risk sentiment fragile, while market participants awaited U.S. business activity data.

President Joe Biden and House Speaker Kevin McCarthy ended discussions on Monday with no agreement on how to lift the U.S. government’s $31.4 trillion debt ceiling. However, they pledged to continue their talks. Also, the Democratic president and the top congressional Republican expressed optimism over ongoing talks and downplayed fears of a U.S. default.

“The debt ceiling drama has reached a fever pitch in recent weeks. The policy disagreements among lawmakers appear wide as we enter crunch time,” said economists at Wells Fargo.

In Monday’s trading session, Wall Street’s major averages closed mixed, with the tech-heavy Nasdaq 100 rising to a 13-month high as investors piled into mega-cap technology stocks. Also, regional bank stocks gained ground, led by a more than +19% jump in PacWest Bancorp (PACW) after it agreed to sell a $2.6 billion portfolio of 74 real estate construction loans to a subsidiary of Kennedy-Wilson Holdings. At the same time, the blue-chip Dow underperformed major benchmarks as Nike (NKE) slid about -4% after Williams Trading downgraded the stock to sell from hold with a price target of $95.

St. Louis Fed President James Bullard said Monday the U.S. central bank would need to hike the policy rate by another half-point this year to quell inflation. “I’m thinking two more moves this year - exactly where those would be this year, I don’t know - but I’ve often advocated sooner rather than later,” he said. At the same time, Minneapolis Fed President Neel Kashkari said he might support a pause in June but cautioned against reading too much into a June pause in the current rate-hiking cycle. “If we were to skip in June, that does not mean we’re done with our tightening cycle. It means to me we’re getting more information,” Kashkari said. In addition, Atlanta Fed President Raphael Bostic said he is “comfortable waiting a bit” to see how the Fed’s tightening campaign plays out.

Meanwhile, U.S. rate futures have priced in an 80.1% probability of no hike and a 19.9% chance of a 25 basis point rate increase at the next central bank meeting in June.

Today, all eyes are focused on the U.S. S&P Global Composite PMI preliminary reading in a couple of hours. Economists, on average, forecast that the May S&P Global Composite PMI will stand at 50.0, compared to the previous value of 53.4.

Also, investors are likely to focus on the U.S. Manufacturing PMI, which was at 50.2 in April. Economists foresee the new figure to be 50.0.

U.S. Services PMI preliminary reading will be reported today. Economists foresee this figure to stand at 52.6 in May, compared to the previous number of 53.6.

U.S. Building Permits data will also be closely watched today. Economists expect April’s figure to be 1.416M, compared to 1.437M in March.

U.S. New Home Sales data will be reported today as well. Economists estimate this figure to come in at 663K in April, compared to the previous value of 683K.

In the bond markets, United States 10-Year rates are at 3.724%, up +0.27%.

The Euro Stoxx 50 futures are down -0.50% this morning as investors digested a slew of important regional economic data while keeping a close eye on U.S. debt ceiling talks. Data on Tuesday showed that Eurozone business growth remained solid but slowed slightly more than expected in May. Losses in travel and financial services stocks are leading the overall market lower. Meanwhile, ECB policymaker Pablo Hernandez de Cos said Monday that the central bank still needs to raise its interest rates further to bring inflation down to its medium-term goal of 2%. In corporate news, Julius Baer Group Ltd (BAER.Z.IX) plunged about -7% after the Swiss bank posted a moderate increase in assets under management and money inflows in the first four months of the year.

France’s Manufacturing PMI (preliminary), France’s S&P Global Composite PMI (preliminary), France’s Services PMI (preliminary), Germany’s Composite PMI (preliminary), Germany’s Manufacturing PMI (preliminary), Germany’s Services PMI (preliminary), Eurozone’s Manufacturing PMI (preliminary), Eurozone’s S&P Global Composite PMI (preliminary), Eurozone’s Services PMI (preliminary), U.K.’s Composite PMI (preliminary), U.K.’s Manufacturing PMI (preliminary), and U.K.’s Services PMI (preliminary) data were released today.

The French May Manufacturing PMI stood at 46.1, stronger than expectations of 46.0.

The French May S&P Global Composite PMI came in at 51.4, weaker than expectations of 52.3.

The French May Services PMI was at 52.8, weaker than expectations of 54.2.

The German May Composite PMI has been reported at 54.3, stronger than expectations of 53.5.

The German May Manufacturing PMI stood at 42.9, weaker than expectations of 45.0.

The German May Services PMI was at 57.8, stronger than expectations of 55.5.

Eurozone May Manufacturing PMI came in at 44.6, weaker than expectations of 46.2.

Eurozone May S&P Global Composite PMI stood at 53.3, weaker than expectations of 53.7.

Eurozone May Services PMI was at 55.9, stronger than expectations of 55.6.

U.K. May Composite PMI has been reported at 53.9, weaker than expectations of 54.6.

U.K. May Manufacturing PMI stood at 46.9, weaker than expectations of 48.0.

U.K. May Services PMI came in at 55.1, weaker than expectations of 55.5.

Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -1.52%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -0.42%.

China’s Shanghai Composite today closed lower as investors remained concerned about the country’s slowing economic rebound, while a weakening yuan and geopolitical risks also weighed on sentiment. The relationship between the United States and China deteriorated following China’s decision on Sunday to ban Micron Technology Inc from selling memory chips to key domestic industries. Also, China’s yuan weakened on Tuesday, wobbling around five-month lows as hawkish comments from U.S. Federal Reserve officials propped up the U.S. dollar. Meanwhile, foreign investors on Tuesday sold a net 3.7 billion yuan of Chinese stocks via the Stock Connect scheme.

“Financial markets are losing faith in China’s economic recovery,” said Wei He, China economist at Gavekal Dragonomics, in a note.

Japan’s Nikkei 225 Stock Index closed lower today, retreating from a 33-year high as some investors locked in profits following an exciting eight-day rally. Data on Tuesday showed the country’s factory activity advanced for the first time in seven months in May, while the service sector hit record growth. Meanwhile, Nippon Paper Industries Co., Ltd surged about +15% and was the top percentage gainer on the Nikkei after Nomura upgraded the stock to buy. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 5.43% to 18.98.

The Japanese May Manufacturing PMI stood at 50.8, stronger than expectations of 49.5.

The Japanese May Services PMI came in at 56.3, stronger than expectations of 55.2.

Pre-Market U.S. Stock Movers

Myriad Genetics Inc (MYGN) rose over +3% in pre-market trading after Goldman Sachs upgraded the stock to buy from sell.

Lifecore Biomedical Inc (LFCR) climbed more than +17% in pre-market trading after the company announced it had entered into $150M new financing with Alcon.

Microvast Holdings Inc (MVST) plunged over -22% in pre-market trading after Reuters reported the U.S. Energy Department canceled contract negotiations on a $200M grant.

Guardant Health Inc (GH) slid more than -7% in pre-market trading after the company announced that it had commenced an underwritten public offering of $250M of its common stock.

Quanterix Corp (QTRX) gained over +6% in pre-market trading after Goldman Sachs upgraded the stock to buy from neutral.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Tuesday - May 23rd

Intuit (INTU), Lowe’s (LOW), Palo Alto Networks (PANW), AutoZone (AZO), Agilent Technologies (A), Dick’s Sporting Goods (DKS), BJs Wholesale Club (BJ), Vipshop (VIPS), VF (VFC), Williams-Sonoma (WSM), Toll Brothers (TOL), New Relic Inc (NEWR), Endava (DAVA), IHS Holding (IHS), Urban Outfitters (URBN), Taro Pharma Industries (TARO), Kingsoft Cloud (KC), Eagle Point Cred (ECC), Ooma Inc (OOMA), Affimed NV (AFMD), Citi Trends (CTRN), Ree Automotive Holding (REE), Zepp Health (ZEPP), Nautilus (NLS).

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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.