Stocks Set to Open Higher as Investors Weigh U.S. Debt Ceiling Deal

Oleksandr Pylypenko - Barchart - Tue May 30, 2023

June S&P 500 futures (ESM23) are up +0.53%, and June Nasdaq 100 E-Mini futures (NQM23) are up +1.09% this morning on hopes that Congress will pass a debt ceiling bill to avert a first-ever U.S. default.

U.S. President Joe Biden on Sunday finalized a budget agreement with top congressional Republican Kevin McCarthy to suspend the $31.4 trillion debt limit until January 1st, 2025, and cap some federal spending to prevent a catastrophic U.S. debt default. President Biden said the final U.S. debt ceiling deal was ready to move to Congress for a vote. However, a handful of Republican lawmakers said Monday they would oppose the proposed debt ceiling deal.

In Friday’s trading session, Wall Street’s major indexes ended sharply higher, with the tech-heavy Nasdaq 100 climbing to a 13-1/2 month high. Marvell Technology (MRVL) jumped over +32% and was the top percentage gainer on the Nasdaq 100 after the semiconductor company reported upbeat Q1 results and said its FY24 revenue related to AI would “at least double.” Also, Workday Inc (WDAY) climbed about +10% after the company posted better-than-expected Q1 results and raised the lower end of its FY24 subscription revenue guidance. On the negative side, Ulta Beauty Inc (ULTA) plunged over -13% after the cosmetics retailer reported mixed Q1 results and trimmed its annual operating margin forecast.

Data on Friday showed the U.S. Core PCE Price Index, the Fed’s preferred gauge of inflation, stood at +0.4% m/m and +4.7% y/y in April, higher than the forecast of +0.3% m/m and +4.6% y/y. Also, U.S. Personal Spending came in at +0.8% m/m in April, stronger than expectations of +0.4% m/m. In addition, the U.S. May Michigan Consumer Sentiment index was revised upward to 59.2 from 57.7, stronger than expectations of 57.9.

“We still have inflation, we still have higher interest rates, and that will continue to be an overhang for the market until the Federal Reserve goes on the sidelines,” said David Sadkin, a president at Bel Air Investment Advisors.

Cleveland Fed President Loretta Mester said Friday that she would not rule out hiking interest rates at next month’s central bank meeting. “Everything is on the table in June. Inflation is still too high, and it’s stubborn,” Mester said.

Meanwhile, U.S. rate futures have priced in a 38.2% probability of no hike and a 61.8% chance of a 25 basis point rate increase at the June meeting.

In the coming week, the U.S. Nonfarm Payrolls report for May will be the main highlight. Also, market participants will be eyeing a spate of economic data, including the U.S. Chicago PMI, JOLTs Job Openings, ADP Nonfarm Employment Change, Initial Jobless Claims, Nonfarm Productivity, Unit Labor Costs, Manufacturing PMI, ISM Manufacturing Employment, ISM Manufacturing PMI, ISM Manufacturing Prices, Crude Oil Inventories, Average Hourly Earnings, Private Nonfarm Payrolls, and Unemployment Rate.

In addition, several Fed officials will be making appearances in the next few days, including Richmond Fed President Thomas Barkin, Philadelphia Fed President Patrick Harker, Boston Fed President Susan Collins, Governor Michelle Bowman, and Governor Philip Jefferson.

Today, all eyes are focused on U.S. CB Consumer Confidence data in a couple of hours. Economists, on average, forecast that May CB Consumer Confidence will come in at 99.0, compared to the previous value of 101.3.

Also, investors will likely focus on the U.S. S&P/CS HPI Composite - 20 n.s.a., which stood at +0.4% y/y in February. Economists foresee the March figure to be -1.6% y/y.

In the bond markets, United States 10-Year rates are at 3.749%, down -1.74%.

The Euro Stoxx 50 futures are up +0.51% this morning as investors assessed the tentative deal reached by U.S. lawmakers to lift the U.S. debt ceiling while also digesting important regional economic data. Data on Tuesday showed that Spanish inflation fell more than expected in May due to falling fuel prices. Meanwhile, ECB Governing Council member Pablo Hernandez de Cos said Monday that the central bank’s tightening cycle is getting closer to its end, but it has “some way to go yet.” In corporate news, shares of Wpp Plc (WPP.LN) rose about +2% after the company announced its partnership with chipmaker Nvidia to use generative artificial intelligence for digital advertising.

Spain’s CPI (preliminary), Spain’s Retail Sales, and Eurozone’s Consumer Confidence data were released today.

The Spanish May CPI has been reported at -0.1% m/m and +3.2% y/y, weaker than expectations of +0.9% m/m and +4.4% y/y.

The Spanish April Retail Sales came in at +5.5% y/y, stronger than expectations of +0.7% y/y.

Eurozone May Consumer Confidence stood at -17.4, in line with expectations.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.09%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.30%.

China’s Shanghai Composite closed just above the flatline today as rising doubts about the outlook for the world’s second-largest economy and worsening ties between Washington and Beijing continued to weigh on sentiment. China rejected a request by the U.S. for a meeting between U.S. defense secretary Lloyd Austin and Chinese defense minister Li Shangfu at an annual security forum in Singapore later this week. Meanwhile, shares of some artificial intelligence companies jumped on Tuesday, with Innovative Medical Management Co Ltd climbing about +10% and Jiangsu Apon Medical Technology Co Ltd surging +20%. Also, shares of state-owned enterprises gained ground, with CRRC Corp Ltd rising over +7%. Investor focus is now squarely on Chinese manufacturing and service sector activity readings due on Wednesday.

“Sentiment around China continues to be bearish ahead of May’s manufacturing PMI due on Wednesday,” UBS analysts wrote in a note.

Japan’s Nikkei 225 Stock Index closed higher for a fourth straight session amid optimism for more investment in the nation’s semiconductor industry. A panel at the Ministry of Economy, Trade and Industry Tuesday offered to revise the country’s chip strategy to boost the development of energy-efficient chips for generative AI. Government data on Tuesday showed that Japan’s unemployment rate fell to 2.6% in April from 2.8% in the previous month. Meanwhile, shares of the chip-testing equipment maker Advantest Corp rose over +2%, extending a four-day gain to about +29%. Also, Kobe Steel Ltd climbed more than +5% after Mizuho Securities upgraded the stock to buy. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 4.55% to 20.21.

The Japanese April Jobs/applications ratio stood at 1.32, in line with expectations.

The Japanese April Unemployment Rate came in at 2.6%, stronger than expectations of 2.7%.

Pre-Market U.S. Stock Movers

Iovance Biotherapeutics Inc (IOVA) climbed more than +15% in pre-market trading after announcing that the U.S. FDA accepted its BLA for lifileucel for patients with advanced melanoma.

Lexicon Pharmaceuticals Inc (LXRX) surged over +16% in pre-market trading, extending Friday’s gains after the company announced that the U.S. FDA had approved INPEFA for the treatment of heart failure.

NVIDIA Corporation (NVDA) gained more than +3% in pre-market trading after CEO Jensen Huang revealed several AI-related products and services.

Universal Health Services Inc (UHS) rose over +1% in pre-market trading after SVB Securities upgraded the stock to outperform from market perform with a price target of $170, up from $147.

Ford Motor Company (F) climbed more than +2% in pre-market trading after Jefferies upgraded the stock to buy from hold.

Coinbase Global Inc (COIN) rose over +3% in pre-market trading after Atlantic Equities upgraded the stock to overweight from neutral.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Tuesday - May 30th

HP Inc (HPQ), Hewlett Packard (HPE), U-Haul Holding (UHAL), Catalent Inc (CTLT), Box Inc (BOX), Skyline (SKY), Ambarella (AMBA), Golar (GLNG), Noah (NOAH), Gaotu Techedu DRC (GOTU), Tsakos Energy (TNP), Up Fintech (TIGR), Agora (API), Burning Rock (BNR), Sportsmans (SPWH).

More Stock Market News from Barchart

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.