Daily Markets: Debt Ceiling Impasse Continues

Today’s Big Picture

Asia-Pacific equity markets finished the day down across the board. South Korea’s KOSPI ended the day down 0.10 points which shows as unchanged but still was enough to qualify. Taiwan’s TAIEX declined 0.18%, India’s SENSEX fell 0.34%, Australia’s ASX All Ordinaries gave back 0.73%, Japan’s Nikkei eased 0.89%, and China’s Shanghai Composite closed 1.28% lower. Hong Kong’s Hang Seng sectors were all down except for Utilities, but that was not enough to overcome the 5.02% drawdown in Consumer Services which helped drive the overall index 1.62% lower. European markets are down across the board in midday trading and U.S. futures point to a lower open.

With debt limit talks in Washington reportedly hitting a fresh impasse as negotiators remain far apart on key issues, including spending cuts demanded by Republicans, the market is becoming increasingly concerned amid a shortening runway for the U.S. to avoid default. The impasse increases the likelihood that the House and Senate would both have to vote on any deal next week, shortly before June 1, when Treasury Secretary Janet Yellen repeatedly said the U.S. could run out of cash to pay its bills. With lawmakers currently set to depart Washington for the Memorial Day holiday, uncertainty over their ability to reach a deal is growing.

And while eyes continue to focus on Washington, we’ve seen further erosion in interest rate cut expectations in the back half of this year. While closer to the Fed’s repeated message it has no plans to cut rates while inflation remains far above its 2% target, Fed Fund Futures traders are still pricing in a rate cut or two before year-end.

Data Download

International Economy

The consumer price inflation in the UK fell to 8.7% YoY in April, the lowest since March 2022, due to a sharp slowdown in electricity and gas prices. Still, the inflation rate exceeded market expectations of 8.2% and remained well above the Bank of England's target of 2.0%. Meanwhile, the core inflation rate in the United Kingdom accelerated to 6.8% in April, the highest since March of 1992, compared to 6.2% in the previous month and higher than market forecasts of 6.2%.

The Ifo Business Climate indicator for Germany dropped by 1.7 points from a month earlier to 91.7 in May, down from the previous month's 14-month high and falling short of market expectations of 93.0. It also marked the first monthly decline in the index since last October, amid a substantial deterioration in industry expectations. Expectations for the coming months were more pessimistic (88.6 vs 91.7 in April) and firms' assessments of their current situation have also become slightly more negative (94.8 vs 95.1).

Domestic Economy

This morning brings the usual Wednesday fare which is the weekly MBA Mortgage Applications Index and the EIA’s look at oil inventories. Shortly after 12 PM ET, Federal Reserve Governor Christopher Waller will be speaking at the 2023 Santa Barbara County Economic Summit. Markets will be looking to see if his view on inflation and monetary policy has shifted in recent weeks and comparing that against the 2 PM ET release of the Fed’s latest monetary policy meeting minutes.

Markets

The lack of a debt ceiling resolution in the face of continued reminders from the U.S. Department of Treasury that the federal government is facing insolvency in about a week is starting to take its toll on equities. While Energy (1.07%) continues to trade on its own fundamentals, All sectors closed lower yesterday with the biggest hits going to Materials (-1.55%) and Technology (-1.48%). There was relative safety in Utilities although the sector still saw a 0.35% decrease by the close. The Russell 2000 fell 0.43%, the Dow declined 0.69%, the S&P 500 dropped 1.12% and the Nasdaq Composite closed 1.26% lower. After presenting positive phase I/II research results on a new protein replacement therapy, shares of Moderna were bid up 8.69% which seemed to indicate the beginning of a reversal of the stock’s YTD 29.44% slide prior to yesterday’s close.

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -0.28%
• S&P 500: 7.97%
• Nasdaq Composite: 20.00%
• Russell 2000: 1.50%
• Bitcoin (BTC-USD): 64.02%
• Ether (ETH-USD): 54.74%

Stocks to Watch

Before U.S. equity markets begin trading today, Abercrombie & Fitch (ANF), Kohl’s (KSS), Petco Health & Wellness (WOOF), and The Children’s Place (PLCE) are expected to report their quarterly results.

Palo Alto Networks (PANW) reported April quarter EPS of $1.10, well ahead of the $0.93 consensus. Revenue for the quarter rose 24.1% YoY to $1.72 billion, tying the consensus forecast. While the company shared it to see heightened deal scrutiny amid cautious macroeconomic background, its remaining performance obligation grew 35% year over year to $9.2 billion. for the July quarter, Palo Alto issued upside EPS guidance of $1.26-$1.30 vs. the $1.18 consensus with revenue of $1.937-$1.967 billion bookending the $1.95 billion consensus.

Transportation management systems company Landstar Systems (LSTR) issued downside guidance for its June quarter with EPS of $1.75-$1.85 vs. its prior outlook for $1.90-$2.00 and the $1.97 consensus. June quarter revenue is now expected to be in the range of $1.325-$1.375 billion, down from $1.40-$1.45 billion and the $1.42 billion consensus. The company noted its update outlook reflects truckload volume currently trending below 2Q22 by 16%-18%, and revenue per load on loads hauled via truck trending below 2Q22 by 14%-16%.

April quarter top and bottom line results for Toll Brothers (TOL) crushed consensus expectations as the homebuilder delivered 2,492 homes during the quarter, up 4% YoY and well ahead of its guidance for 2,050 - 2,150 units. For the current quarter, Toll sees deliveries of 2,350-2,450 units. Toll also lifted its 2023 delivery guidance to 8,900-9,500 units from 8,000-9,000. Per the company, “the supply of homes for sale is being further limited by a historically tight resale market as homeowners are reluctant to give up their low-rate mortgages.” It seems that the supply-demand imbalance is an added tailwind for the housing market.

March quarter results at VF Corp. (VFC) came in ahead of consensus expectations despite revenue falling 3% YoY. Management shared the company’s International business rose 2% (up 8% in constant dollars) with the EMEA region delivering its eighth consecutive quarter of growth in constant dollars. It also shared its Greater China business was up 3% (up 10% in constant dollars), leading to further sequential improvement in the APAC region. Offsetting that was the 7% drop in the Americas, which was primarily driven by reductions in the U.S. Wholesale business. For its fiscal year, VF now sees EPS of $2.05-$2.25 vs. the $2.17 consensus.

Microsoft (MSFT) started making available to users a host of AI upgrades, including access to ChatGPT in its search engine Bing as well as to cloud services, a launch that looks to narrow the gap with Alphabet's (GOOGL) Google.

Boeing (BA) Chief Executive Dave Calhoun said it could take until the end of 2024 to iron out sector-wide supply chain problems that have hampered global jetliner production.

Shutterstock (SSTK) said it would buy animated-images platform Giphy from Meta Platforms (META) for $53 million in cash, months after the Facebook owner had agreed to divest the company on competition concerns. Last year, the UK’s competition regulator ordered Meta to sell Giphy over fears that it could deny or limit competitors such as Snapchat and Twitter access to the target's content.

IPOs

Near-term the calendar for such activity looks rather thin. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

American Eagle (AEO), e.l.f. Beauty (ELF), Nvidia (NVDA), and Splunk (SPLK) are slated to report their quarterly results after equities stop trading. Those looking for more on which companies are reporting when should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Thursday, May 25

• Germany: 1Q 2022 GDP
• Germany: GfK Consumer Climate - June
• US: Weekly Initial & Continuing Jobless Claims
• US: GDP (Second Estimate) – 1Q 2023
• US: Pending Home Sales – April
• US: Weekly EIA Natural Gas Inventories

Friday, May 26

• Japan: Tokyo CPI – May
• UK: Retail Sales – April
• US: Personal Income & Spending, PCE Price Index – April
• US: Durable Orders – April
• US: The University of Michigan Consumer Sentiment Index (Final) – May

Thought for the Day

“Nearly all men can stand adversity, but if you want to test a man’s character, give him power.” ~ Abraham Lincoln

Disclosures

• Palo Alto Networks (PANW), Splunk (SPLK) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Microsoft (MSFT) is a constituent of the Tematica Research Thematic Dividend All-Stars Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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