Stock Index Futures Climb as Investors Weigh Economic Outlook, U.S. Debt Ceiling Talks Remain in Focus

Oleksandr Pylypenko - Barchart - Fri May 12, 2023

June S&P 500 futures (ESM23) are up +0.44%, and June Nasdaq 100 E-Mini futures (NQM23) are up +0.30% this morning after three major U.S. benchmark indices closed mixed on Thursday as renewed concerns about the health of regional banks overshadowed economic data that showed a moderation in producer prices and signs of cooling in the labor market.

In Thursday’s trading session, the tech-heavy Nasdaq 100 outperformed major benchmarks, helped by a more than +4% surge in shares of Alphabet (GOOGL) after the company said it would expand its use of artificial intelligence at the I/O developer conference. In addition, JD.com (JD) climbed over +7% and was the top percentage gainer on the tech-heavy index after the company reported upbeat Q1 results. At the same time, the banking sector worries continued to weigh on sentiment, with PacWest Bancorp (PACW) plunging over -22% after the bank reported a -9.5% drop in deposits last week and pledged an additional $5.1 billion of its loans to the central bank. Also, Walt Disney Company (DIS) slid over -8%, weighing on both the benchmark S&P 500 and the blue-chip Dow after the entertainment company reported an unexpected drop in Disney+ subscribers.

Data on Thursday showed U.S. producer price index fell to a 2-year low of +2.3% y/y in April, weaker than expectations of +2.4% y/y. Also, the Labor Department report showed claims for state unemployment benefits rose +22K to a 1-1/2 year high of 264K last week, higher than the expected figure of 245K.

“There is an increasing sense that interest rates are going to be lower later this year. Without the debt ceiling uncertainty, the market would be moving to new highs,” said David Russell, a vice president of market intelligence at TradeStation.

U.S. rate futures have priced in an 85.8% chance of no hike and a 14.2% chance of a 25 basis point rate increase at the next central bank meeting in June. Moreover, the probability of a 25 basis point cut at the July meeting is now at 36.2%. However, Wells Fargo cautioned Thursday that the Federal Reserve will not cut rates this year.

Meanwhile, the meeting between U.S. President Joe Biden and top lawmakers, initially planned for Friday, has been rescheduled for early next week. However, a source familiar with the meetings said this was a positive development and that talks between the two sides were moving forward. The International Monetary Fund warned Thursday a U.S. debt default would have “very serious repercussions” for the U.S. economy and the global economy.

Today, all eyes are focused on the U.S. Michigan Consumer Sentiment preliminary reading in a couple of hours. Economists, on average, forecast that the Michigan Consumer Sentiment Index will stand at 63.0 in May, compared to the previous value of 63.5.

U.S. Michigan Consumer Expectations will be reported today. Economists estimate the preliminary figure to come in at 59.8 in May, compared to 60.5 in April.

U.S. Export and Import Price Indexes for April will also be in focus today. Economists anticipate Export Price Index to be at +0.2% m/m and Import Price Index to stand at +0.3% m/m.

In addition, investors are likely to focus on speeches from St. Louis Fed President James Bullard and Fed Governor Philip Jefferson for fresh insights on the Fed’s monetary policy trajectory.

In the bond markets, United States 10-Year rates are at 3.416%, up +0.56%.

The Euro Stoxx 50 futures are up +0.88% this morning as investors assessed a deluge of important regional economic data and more corporate earnings results. Strength in luxury stocks is lending support to the overall market, with Richemont (CFR.Z.IX) climbing over +7% after the Swiss luxury goods maker reported upbeat Q1 results. Meanwhile, the Office for National Statistics said Friday that U.K. gross domestic product rose +0.1% q/q in the first quarter, while the British GDP shrank by -0.3% m/m in March. In other news, Thg Plc (THG.LN) plunged over -11% after the e-commerce company announced it ended its takeover talks with Apollo Global Management.

U.K.’s GDP (preliminary), U.K.’s Industrial Production, U.K.’s Manufacturing Production, U.K.’s Monthly GDP 3M/3M Change, U.K.’s Trade Balance, France’s CPI, and Spain’s CPI data were released today.

U.K. GDP has been reported at +0.1% q/q and +0.2% y/y in the first quarter, in line with expectations.

U.K. March Industrial Production stood at +0.7% m/m and -2.0% y/y, stronger than expectations of +0.1% m/m and -2.9% y/y.

U.K. March Manufacturing Production came in at +0.7% m/m and -1.3% y/y, stronger than expectations of -0.1% m/m and -2.5% y/y.

U.K. March Monthly GDP 3M/3M Change was at +0.1%, in line with expectations.

U.K. March Trade Balance stood at -16.36B, stronger than expectations of -17.50B.

The French April CPI came in at +0.6% m/m and +5.9% y/y, in line with expectations.

The Spanish April CPI has been reported at +0.6% m/m and +4.1% y/y, in line with expectations.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed down -1.12%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.90%.

China’s Shanghai Composite closed lower for a fourth straight session today as disappointing trade and inflation data released this week darkened the country’s economic rebound prospects. Also, data on Thursday showed new Chinese bank loans plunged more sharply than expected in April, adding to doubts over the economy’s post-pandemic recovery. On the positive side, Hong Kong-listed tech stocks advanced on Friday, with JD.com surging over +7% after the e-commerce giant posted upbeat Q1 earnings. Also, U.S. National Security Adviser Jake Sullivan met with China’s top diplomat Wang Yi in Vienna to ease rising tensions between the countries. The White House said the officials held “candid, substantive, and constructive” discussions on Wednesday and Thursday.

“Investor sentiment likely remains volatile amid debate over macro recovery strength: Based on our conversations with them, investors remain skeptical about macro recovery momentum, as they see mixed signals pointing towards an unbalanced picture,” Morgan Stanley said in a note.

At the same time, Japan’s Nikkei 225 Stock Index closed higher and hit a 1-1/2 year high today as investors digested a batch of strong earnings. Nissan Motor Co Ltd climbed over +5% after the Japanese carmaker reported a sharp increase in fourth-quarter net profit and posted an upbeat operating profit outlook for the current fiscal year. Also, Tokyo Electron Ltd rose more than +3% even after Japan’s leading maker of semiconductor manufacturing tools projected a lower-than-expected FY24 operating profit. On the negative side, SoftBank Group Corp dropped more than -3% after the Japanese technology investor firm logged a second consecutive annual loss. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 2.92% to 15.62.

Pre-Market U.S. Stock Movers

Blue Bird Corp (BLBD) surged more than +29% in pre-market trading after the company reported upbeat Q2 results and raised FY23 revenue guidance.

Tesla Inc (TSLA) rose over +1% in pre-market trading after Elon Musk said he was stepping down from the chief executive position at Twitter.

IONQ Inc (IONQ) plunged about -8% in pre-market trading after the company reported mixed Q1 results.

Amylyx Pharmaceuticals Inc (AMLX) climbed over +9% in pre-market trading after the company posted upbeat Q1 results.

News Corp A (NWSA) gained more than +3% in pre-market trading after the company reported better-than-expected Q3 results.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Friday - May 12th

Crescent Point Energy (CPG), Spectrum Brands (SPB), Embecta (EMBC), Soho House (SHCO), Dingdong (DDL), Airsculpt Technologies (AIRS), Adaptimmune Therapeutics (ADAP), China Automotive (CAAS), Jushi Holdings (JUSHF), Forian (FORA).

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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.