US EARLY MORNING: SPX slips back into sideways range amid debt ceiling impasse; FOMC minutes ahead

OVERNIGHT: On Wall Street, stocks Tuesday dropped, while short-term Treasury yields rose, as investors became increasingly anxious over the lack of progress in US debt limit negotiations. Our US wrap is here. In APAC trade, stocks declined amid ongoing US debt ceiling discussions, while NZ markets were in focus after the RBNZ unexpectedly signalled the end of its tightening cycle. In Japan, the first positive Reuters Tankan reading for this year did little to spur risk appetite. China indices were lower after the White House spoke out against China's Micron (MU) ban, while a lawmaker called for the Commerce Department to add Changxin Memory Technologies to the entity list and called to ensure that no US export licenses are granted to firms operating in China which are used to backfill Micron. Our APAC wrap is here. It was a sour start to the midweek trading session in Europe, with indices underwater after the open following a continued impasse in US debt ceiling talks, tense US-Sino relations, some fears about a COVID resurgence in China, as well as hot UK inflation data which has seen traders increase hawkish bets on the Bank of England (see our wrap, below). Our European equity open note is here

US PRE-MARKETS: US equity futures are in the red, but not by as much as their European counterparts. Treasury yields are ticking up, perhaps in sympathy with hot UK inflation data, which has resulted in market pricing for the BoE to tilt hawkishly (see our recap, below). The DXY climbed off overnight lows as yields picked up, and is now trading around flat. Crude benchmarks are higher, bucking the negative risk tone after the API reported bullish energy inventory data for the week, where crude stocks posted a surprise draw, as did distillates, while gasoline inventories saw a much larger than expected decline; additionally, traders cite hawkish warnings from the Saudi Arabian oil minister on Tuesday. Today’s agenda will centre around debt ceiling talks, while the FOMC meeting minutes will be looked at to see the extent to which a June pause was discussed in May (preview below).

S&P 500 OUTLOOK: Last week, we saw the S&P 500 break above the horizontal ranges it had been patrolling since mid-April, but the latest impasse on the debt ceiling and tense US-Sino relations has soured risk sentiment, and the index has now fallen back within the consolidation range (roughly between 4,110-4,185). And strategists think that we may be fixed within these ranges into the end of the year. A poll by Reuters said strategists see the index ending this year at around 4,150 (revised down from their previous estimates for 4,200 in the comparable February poll) – that would still be up around 8% vs end-2022 levels, but implies little movement from current prices. One of the strategists polled said that the outlook for stocks was a “very uninspiring, low-growth backdrop, with tight monetary policy and earnings that will be down this year versus last.” The poll chimes with some of the scepticism that was met in wake of last week's rally, with analysts noting that the upside was not a function of earnings or rates, while most of the gains this year have been driven by a few highly concentrated names. Ahead, while many remain confident that the US economy can avoid a recession, margin compression is still likely to be seen among corporates, and many Fed officials last week were suggesting that the bias for rates could still be to the upside (FY profit growth for this year is seen at a paltry 1.2%, according to Reuters).

US DEBT CEILING LATEST: On Tuesday, the White House and Congressional Republicans faced challenges in reaching an agreement to increase the US borrowing limit, with the uncertainty posing risks to the economy and financial markets, with just nine full days till the estimated debt-limit deadline of June 1st. Republican House Speaker McCarthy and negotiator Graves signalled an impasse, but both remain in deal-seeking mode. Speaker McCarthy said that he hadn't spoken to President Biden, and wasn't scheduled to visit the White House on Tuesday, but emphasized commitment to working until everything is resolved. McCarthy accused Biden and the White House of attempting to involve Medicare and Social Security to disrupt negotiations. House Financial Services Chair McHenry said that the primary disagreement remains on spending, and it is uncertain when negotiations will resume. Republican negotiator Graves mentioned that no further meetings were scheduled, but said that they have made progress in some areas, while still facing significant differences on the debt limit duration. Elsewhere, the White House acknowledged that using the 14th Amendment to bypass the debt ceiling wouldn't solve the current problem but didn't rule out considering the strategy if an agreement can't be reached.










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

InflationFederal ReserveUnited StatesUSDAI FPChinaMicrosoft CorpRBNZBrentFOMCHawkBOEMSFTDataFinancial ServicesCentral BankNVDAGovernorRepublicanPresidentUnited KingdomMU.USNVDA.USMSFT.USINTU.USPANW.USPACW.USTOL.USURBN.USVFC.USLSTR.USGD.USDAL.USA.USPTCT.USINTUPANWQRVOPacWest BancorpToll Brothers IncGMUrban Outfitters IncVF CorpVFCGeneral Dynamics CorpGDLMTDelta Air Lines IncDALCOOSix Flags Entertainment CorpFixed IncomeSenior PLCBanksInterest RateMETAMUIntuit IncPalo Alto Networks IncPTC Therapeutics IncPTCS&P 500 IndexQRVO.USMonetary PolicyADIOilDXYEU SessionAsian SessionHighlightedResearch SheetEuropeJapanArgentina

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: