US EARLY MORNING: Nasdaq-100 futures higher after solid Nvidia (NVDA) results; debt ceiling concerns prompt Fitch to revise US outlook; Weekly claims and GDP data eyed

OVERNIGHT: Stocks on Wall Street fell as debt ceiling talks once again failed to yield a breakthrough, while the rising risk of default prompted Fitch Ratings to place the US on rating watch negative (see below for our recap); the FOMC minutes were in keeping with recent commentary made by officials (recap below); afterhours, Nvidia (NVDA) earnings were solid, seeing the company’s stock surge over 20%, and supporting the Nasdaq-100 index, where it holds a 5.5% weight. Our US wrap is here. Asian stocks traded mostly lower with the region cautious following the losses on Wall St. Aussie shares weakened as the commodity-related sectors led broad declines, while sentiment was also dampened on news that households are set to pay more in electricity bills. South Korean shares were subdued after the BoK rate decision, where rates were left unchanged, but six of the seven board members left the door open for further tightening. Our APAC wrap is here. European shares tilted lower after the open; a detailed look at German GDP growth in Q1 saw the headline revised to -0.2% Y/Y (exp. 0.2%) and -0.3% Q/Q, confirming that the German economy entered a technical recession. German GfK Consumer Sentiment improved slightly to -24.2 in June (exp. -24.0, prev. -25.8). In the UK, Ofgem sets the energy price cap for July-September at GBP 2,074 (prev. 3,280); the regulator added that, in the medium-term, the UK was unlikely to see prices return to pre-energy crisis levels. In France, data showed the manufacturing business climate easing to 99 in May (exp. 101.0, prev. 101.0). Our European open note is here

US PRE-MARKETS: US equity futures are mixed. The Nasdaq-100 is outperforming after index heavyweight Nvidia (NVDA) reported solid results after Thursday's close; the US chipmaker is seen as a bellwether for the AI sector given its semiconductors are used in powering AI-driven applications. The NVDA (and NDX) outperformance afterhours may be camouflaging the caution in other indices however, with S&P 500 futures more subdued, while Dow and Russell futures are negative as debt ceiling concerns linger; while sides remain optimistic a deal can be reached to avoid a default, Fitch Ratings revised its outlook for US credit to watch negative. Additionally, in Europe, data this morning confirmed that Germany was in a technical recession following two consecutive quarters of negative growth, and that news is keeping enthusiasm curbed on the continent this morning. Treasury yields are up by 2-4bps, with the short-end underperforming in wake of the FOMC's May meeting minutes, which were in fitting with more recent Fed commentary, and revealed mixed views on interest rate hikes. Goldman Sachs said Fed officials were divided on their near-term policy outlook, and that means that they are likely to pause in June. Other analysts have suggested that the data will drive the narrative for the post-June meetings; the Fed is predicting a mild recession, and participants expect below-trend growth in 2023, but inflation is still seen as too high, while core inflation declining slower than expected. Over the next couple of days, economic data will be released to help shape these views; today we will get a second look at US Q1 GDP, and any upward revisions will be used to build a case that growth has been more resilient than feared, while any downside will further catalyse arguments that the Fed will need to lower rates later this year (even though some officials say that this discussion is not on the cards until next year); weekly initial jobless claims will also offer insight into these trends. Meanwhile, Friday sees the release of personal income, spending and PCE prices - the Fed's preferred gauge of inflation, and timelier than what is in the Q1 GDP data.

DEBT CEILING: House Speaker McCarthy remains optimistic about the prospects of reaching a deal to avoid default, and believes an agreement is possible before June 1st. But analysts remain concerned: after the close, Fitch Ratings placed US on ratings watch negative, citing debt ceiling brinkmanship as X-Date approaches, though the CRA still expects a resolution before June 1st (see here). The White House said Fitch's updated reinforced the need for Congress to act quickly to pass a bipartisan agreement. Treasury Secretary Yellen reiterated her stark warnings the consequences of failing to reach a deal. US House Leader Scalise confirmed the planned Memorial Day weekend recess, but said debt ceiling talks will continue, and lawmakers should be prepared to return to Washington within 24 hours if a deal is reached. Members would have 72 hours to review any debt ceiling bill. Other reports said Republican leadership was reportedly optimistic about debt limit negotiations after days of slow progress, according to some reports.

FOMC MINUTES: Whilst Fed policymakers agreed "the extent to which additional increases in the target range may be appropriate after this meeting had become less certain," which resulted in a tweak to its statement guidance, "some" said that "based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings." "Some" thought more hikes would be needed, "several... noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary," whilst "many" recognised "the need for optionality." On the fiscal circus in Washington, officials had "concerns that the statutory limit on federal debt might not be raised in a timely manner, threatening significant disruptions to the financial system and tighter financial conditions that weaken the economy." Analysts said that the minutes were in fitting with more recent Fed commentary, and has revealed mixed views on interest rate hikes. Our full recap is here.













25 May 2023 - 09:01- Fixed IncomeData- Source: Newsquawk

Federal ReserveUnited StatesNVDAGross Domestic ProductChinaUSDNVDA.USFOMCAI FPSemiconductorsInflationPresidentDataCarl IcahnJanet YellenGermanyIllumina IncBoston Scientific CorpBSXBrentInterest RateMicrosoft CorpMSFTFortinet IncGMInitial Jobless ClaimsSplunk IncBSX.USANFGF.USTW.USENI.IMILMN.USMSFT.USFTNT.USSNOW.USNXPI.USSPLK.USSSYS.USERIC.USAMZN.USNKE.USRCL.USENS.USNVS.USAEO.USGES.USManz AGYieldNASDAQ 100 IndexGoldman Sachs Group Inc/TheRepublicanContinuing ClaimsMDTBBYDLTRRLADSKWDAYMRVLULTACOSTG7FTNTTECHNXPIChairmanSouthern Co/TheCDNSSPLKAMZNNKEORCLGuess? IncILMNNovartis AGSony CorpDASHPM USOPECOilEni SpAEnerSysAntofagasta PLCAustraliaFixed IncomeEquitable Group IncLondon Stock Exchange Group PlcUnited KingdomAsian SessionHighlightedResearch SheetEU SessionEuropeAUDGBPFranceNew ZealandRussian FederationJordanSingapore

Subscribe Now to Newsquawk

Click here for a 1 week free trial

Newsquawk provides audio news and commentary for over 15,000professional traders and brokers worldwide. Services include: