Daily Markets: Debt Ceiling Negotiations Continue

Today’s Big Picture

Asia-Pacific equity markets finished the day mostly flat except for Hong Kong’s Hang Seng, which fell 1.25% and China’s Shanghai Composite which lost 1.52% on news of a new covid subvariant was identified as the cause of the latest outbreak. Japan’s Nikkei declined 0.42%, while Australia’s ASX All Ordinaries, India’s SENSEX, and Taiwan’s TAIEX all came in between -0.04% and 0.04%. South Korea’s KOSPI posted a 0.41% gain led by Health Technology names. European markets are mixed in midday trading and U.S. futures point to a lower open, although we also note that the Cboe Volatility Index (VIX) is also lower, at least at the time of writing.

While President Joe Biden and House Speaker Kevin McCarthy met to negotiate on the U.S. debt ceiling, they came to no firm resolution last night. Both sides will keep negotiating on a debt limit plan to avoid default and we expect all eyes will be on Washington this week even amidst further retailer earnings and several Fed officials making the rounds. A letter yesterday from U.S. Treasury Secretary Janet Yellen to McCarthy noted it is "highly likely" that the Treasury will no longer be able to pay all the government's bills by early June, and possibly as early as June 1, if Congress doesn't raise or suspend the debt limit before then. Clearly, the pressure is on and the timing for a debt ceiling deal may have implications for the global economy as well as the upcoming presidential election cycle. We would remind readers that as much as a deal is needed, the odds of getting the right deal for both sides under such tight time constraints is unlikely, and despite recent posturing, will result in concessions made on both sides.

Data Download

International Economy

The au Jibun Bank Japan Manufacturing PMI increased to an eight-month high of 50.8 in May from a final 49.5 in the previous month, flash data showed. It was the first expansion in factory activity since last October and both new orders and output returned to expansion territory for the first time since last June, and the fastest pace in 13 months. The au Jibun Bank Japan Services PMI increased to a record high of 56.3 in May 2023 from a final 55.4 a month earlier, flash data showed. It was also the ninth consecutive month of growth in the service sector.

The HCOB Flash Manufacturing PMI for the Eurozone fell to 44.6 in May from 45.8 in April, well below forecasts of 46.2. The reading pointed to the sharpest contraction in the factory sector in three years, with output, new orders, and backlogs of orders dropping at a faster pace. The HCOB Flash Eurozone Services PMI edged lower to 55.9 in May from a twelve-month high of 56.2 in April but outperformed the expected reading of 55.6.

The Flash S&P Global/CIPS United Kingdom Manufacturing PMI dropped to 46.9 in May from 47.8 in the previous month, missing the market expectation of 48. For context, this latest reading pointed to the steepest deterioration in the manufacturing sector for five months. The S&P Global/CIPS UK Services PMI decreased to 55.1 in May from 55.9 in the previous month and below the market consensus of 55.5. Of note, travel, leisure, and hospitality businesses widely commented on resilient consumer demand.

Domestic Economy

At 9:45 AM ET this morning, S&P Global will publish its Flash PMI data for May. The May Flash Manufacturing PMI is expected to inch lower to a reading of 50 from 50.2 the prior month, while the Flash May Services PMI reading is expected to come in at 52.6, down from April’s final reading of 53.6.

Shortly after stocks begin trading today, at 10 AM ET April New Home Sales data will be released. New Home sales for the month are expected to slip to 0.665 million from 0.683 million in March.

Markets

Optimism on a potential debt ceiling compromise helped major equity indexes shake off Friday’s dour mood, except for the Dow, which fell 0.42%. The S&P 500 managed to eke out a 0.02% gain while The Nasdaq Composite rose 0.50% and the Russell 2000 closed 1.22% higher. Consumer Staples declined 1.51%, as both Coca-Cola (KO) [-2.10%] and PepsiCo (PEP) [-2.71%] fell, as did Proctor & Gamble (PG) [-2.62%] with all three names contributing to just over 60% of the sector’s returns. Proof that one person can make a difference surfaced yesterday as traders bid up Match Group (MTCH) shares 6.72% after it was announced that former Meta executive Stephane Taine was appointed as the Chief Product officer for the company’s Hinge product.

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

• Dow Jones Industrial Average: 0.42%
• S&P 500: 9.20%
• Nasdaq Composite: 21.54%
• Russell 2000: 1.94%
• Bitcoin (BTC-USD): 61.84%
• Ether (ETH-USD): 51.73%

Stocks to Watch

Before U.S. equity markets begin trading today, BJ’s Wholesale (BJ), Dick’s Sporting Goods (DKS), Lowe’s (LOW), and Williams-Sonoma (WSM) are expected to report their quarterly results.

April quarter top and bottom line results at Zoom Video (ZM) bested consensus expectations. Exiting the quarter, the company had ~215,900 Enterprise customers, up 9% YoY, as well as ~3,580 customers contributing more than $100,000 in trailing 12-month revenue, up ~23% YoY. For the current quarter, Zoom sees $1.04-$1.06 vs. the $1.06 consensus with revenue in the range of $1.110-$1.115 billion vs. the $1.11 billion consensus.

Shares of Microvast (MVST) sank in after-market trading last night following reports the U.S. Department of Energy canceled a $200 million grant after lawmakers cited concerns over its alleged links to China's government.

Reports of an activist investor taking an interest in Yelp (YELP) spiked the shares in after-market trading last night. TCS Capital argues Yelp could be sold to another technology or media company or private-equity firm, for at least $70 a share vs. yesterday’s closing price of $32.52.

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

Palo Alto Networks (PANW), Urban Outfitters (URBN), and VF Corp. (VFC) 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

Wednesday, May 24

• UK: Consumer Price Index, Producer Price Index – April
• Germany: Business Expectations Index – May
• US: Weekly MBA Mortgage Applications
• US: Weekly EIA Crude Oil Inventories

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

“It is amazing what you can accomplish if you do not care who gets the credit.” ― Harry S Truman

Disclosures

• Palo Alto Networks (PANW) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• Lowe’s (LOW) 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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