Daily Markets: Yellen Warns on Debt Ceiling, Earnings Continue

Today’s Big Picture

After playing catch-up from yesterday’s holiday, Asia-Pacific equity markets finished the day up except for Australia’s ASX All Ordinaries which fell 0.86%. Japan’s Nikkei gained 0.12%, Hong Kong’s Hang Seng rose 0.20%, Taiwan’s TAIEX advanced 0.37%, and India’s SENSEX closed 0.40% higher. South Korea’s KOSPI posted a 0.91% gain led by Non-Energy Materials names. China’s markets remain closed today and tomorrow as the country continues to mark International Worker’s Day. European markets are lower in midday trading save a handful of markets and U.S. futures point to a lower open.

We have a confluence of events that has put the stock market in a cautious mood this morning. Yesterday, Treasury Secretary Janet Yellen informed House Speaker Kevin McCarthy and Congressional leadership the Treasury Department could run out of extraordinary measures to pay the government's bills as early as June 1, if the government's debt limit is not raised or suspended. As of this morning, President Biden is expected to meet with House Speaker Kevin McCarthy and other congressional leaders on May 9 to discuss the debt ceiling.

The Federal Reserve kicks off its two-day policy meeting today that concludes with its policy statement at 2 PM ET tomorrow and the corresponding press conference. Expectations call for the Fed to boost rates another 25-basis points exiting that meeting, but as we’ve discussed in recent Daily Markets notes, what the Fed shares about the path ahead for its efforts will be the real focus. To top it off, we have another barrage of quarterly earnings this morning and several pieces of March economic data, including March job openings.

Data Download

International Economy

Retail Sales in Germany decreased 8.6% YoY in March, following a 7.1% drop in February, and marking an 11th straight month of declines. Sales of food plunged 10.3%, the biggest decline since 1994 and non-food sales went down 7.2%.

The S&P Global/CIPS UK Manufacturing PMI was revised higher to 47.8 in April 2023, up from the earlier flash estimate of 46.6 and compared with March's 47.9. Still, the latest PMI suggested the downturn in the UK manufacturing sector continued for a ninth consecutive month.

The preliminary estimate of April consumer price inflation in the Euro Area slightly increased to 7.0% from March's 13-month low of 6.9%. The preliminary reading on April core inflation, which excludes energy, food, alcohol, and tobacco, edged down to 5.6% from a record high of 5.7% in March and the expected figure of 5.7%.

Domestic Economy

At 10 AM ET, both the March reports for Factory Orders and JOLTS Job Openings will be published. Factory Orders are expected to rise 1.1% MoM after falling 0.7% in February. The JOLTS report is expected to show the number of job openings fell to 9.775 million in March from 9.931 million in February.

Markets

The market's momentum seems to have run out as major equity indexes were mostly unchanged yesterday. The S&P 500 and Russell 2000 ended the day essentially flat, down 0.04% and up 0.01%, respectively while the Nasdaq Composite fell 0.11% and the Dow closed 0.14% lower. Sectors were similarly listless except for Real Estate (-0.93%), Consumer Discretionary (-0.99%), and Energy (-1.13%). Traders bid shares of Newell Brands (NWL) down 11.03% yesterday after the company’s reported Q1 loss on lower sales and a cautious outlook.

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

• Dow Jones Industrial Average: 2.73%
• S&P 500: 8.55%
• Nasdaq Composite: 16.68%
• Russell 2000: 0.45%
• Bitcoin (BTC-USD): 69.32%
• Ether (ETH-USD): 52.82%

Stocks to Watch

Before U.S. equity markets begin trading today, AGCO Corp. (AGCO), Cummins (CMI), DuPont (DD), Eaton (ETN), Lending Tree (TREE), Marriott (MAR), Molson Coors Brewing (TAP), Pfizer (PFE), Restaurant Brands (QSR), Sysco (SYY), and Uber (UBER) are expected to report their quarterly results

March quarter results at NXP Semiconductor (NXPI) topped consensus expectations even though revenue fell 0.5% YoY. By segment, Automotive revenue rose 17% YoY, Industrial & IoT fell 26%, mobile dropped 35% and Communications Infrastructure & Other rose 7%. For the current quarter, NXP issued upside guidance, calling for EPS of $3.07-3.49 vs. the $2.99 consensus with revenue of $3.1-$3.3 billion vs. the $3.04 billion consensus. The company is hosting a conference call to discuss its quarterly results and guidance at 8 AM ET today.

Logitech International (LOGI) also posted stronger than expected March quarter results despite the almost 22% drop in revenue for the period amid “the challenging macroeconomic environment and lower enterprise and consumer spending.” Gaming sales fell 22% YoY for the quarter, video collaboration dropped 25%, PC Webcams 39% with YoY declines in Pointing Devices and Keyboards & Combos sales as well. For the first half of its fiscal 2023, the company sees revenue of $1.8-$1.9 billion vs the $1.92 billion consensus.

Process machinery and aerial work platform company Terex (TEX) handily beat expectations for its March quarter. The company lifted its 2023 revenue guidance to $4.8-$5.0 billion from $4.6-$4.8 billion vs. the $4.74 billion consensus. Management will be holding an at 8:30 AM ET that should provide greater granularity on the drivers behind the quarter’s results and that upsized outlook for the year.

DuPont (DD) agreed to acquire Spectrum Plastics Group from AEA Investors for $1.75 billion in cash. Spectrum Plastics is a manufacturer of specialty medical devices and components, serving 22 of the 26 top medical device original equipment manufacturers with a focus on fast-growing therapeutics areas such as structural heart, electrophysiology, surgical robotics, and cardiovascular.

Blackberry (BB) shared it has initiated a review of its business portfolio as it considers strategic alternatives, including the possible separation of one or more units. Per the company’s February 2023 quarterly results, cybersecurity accounted for 58%of revenue, IoT 35%, and Licensing & Other 7%.

Shares of online learning company Chegg (CHGG) fell sharply after the company warned ChatGPT was having a financial impact on its results. The company noted that beginning in March, it saw a significant spike in student interest in ChatGPT but it now believes it is having a negative impact on new customer growth rate. Chegg recently announced CheggMate with Open AI, which is expected to leverage ChatGPT and its own proprietary data and subject matter experts.

IBM (IBM) CEO Arvind Krishna expects that 30% of back office functions, like human resources, will be replaced by AI and automation over a five-year period. With roughly 26,000 workers in non-customer-facing roles, that suggests a potential headcount reduction near 7,800 employees in the coming years.

Reports suggest Morgan Stanley (MS) is preparing for more layoffs with almost 3,000 employees at risk following the 1Q 2023 slump in deal-making.

Shares of Axon Enterprises (AXON) will replace First Republic in the S&P 500 and STAG Industrial (STAG) will replace Axon in the S&P MidCap 400 effective before the market opens on Thursday, May 4.

IPOs

Johnson & Johnson (JNJ) will spin off Kenvue, its consumer health unit in a new IPO expected to start trading on May 5.

Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Airbnb (ABNB), Clorox (CLX), Ford Motor (F), NerdWallet (NRDS), Simon Properties (SPG), Starbucks (SBUX), and Yum China (YUMC) 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 3

• UK: Bank of England Quarterly Bulletin
• US: Weekly MBA Mortgage Applications
• US: ADP Employment Change Report – March
• US: S&P Global Final Services PMI – April
• US: ISM Non-Manufacturing Index – April
• US: Weekly EIA Crude Oil Inventories
• US: FOMC Rate Decision – 2 PM ET

Thursday, May 4

• Eurozone: S&P Global Services PMI – April
• UK: Bank of England Consumer Credit – March
• UK: Services PMI – April
• Eurozone: Producer Price Index – March
• Eurozone: European Central Bank Rate Decision
• US: Weekly Initial & Continuing Jobless Claims
• US: Challenger Job Cuts – April
• US: Productivity & Unit Labor Cost – 1Q 2023
• US: Weekly EIA Natural Gas Inventories

Friday, May 5

• China: Caixin Services PMI – April
• Eurozone: Retail Sales - March
• US: Employment Report – March
• US: Consumer Credit – March

Thought for the Day

“What is rational is actual and what is actual is rational” – G. W. F. Hegel

Disclosures

• Blackberry (BB) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index

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

Other Topics

Stocks Economy Earnings Central Banks Politics