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Debt Ceiling Deal Update

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What’s in Today’s Report:

  • Debt Ceiling Deal Update
  • AI May Be Great, But Fundamentals Matter Too
  • Weekly Economic Cheat Sheet – Summer Rate Hike Back in Play

Stock futures are higher and Treasury yields are falling this morning amid renewed optimism for a debt ceiling deal.

President Biden and Speaker McCarthy agreed in principle to a two-year debt ceiling extension, which markets expect to be signed before the June 5th “X date.”

Eurozone Economic Sentiment dropped to 96.5 vs. (E) 99.4, underscoring worries about growth overseas but the debt ceiling deal optimism is overshadowing worries about the economy this morning.

Today, there are several economic reports to watch including the Case-Shiller Home Price Index (E: -0.1%), FHFA House Price Index (E: 0.3%), and Consumer Confidence (E: 100.0).

Additionally, there is one Fed speaker: Barkin (1:00 p.m. ET), however investors will remain primarily focused on the debt ceiling deal and as long as news flow surrounding the final negotiations remains positive, risk on money flows should continue today.

Why Treasury Yields Surged Yesterday (Hint: Inflation)

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What’s in Today’s Report:

  • Why Treasury Yields Surged Yesterday (Hint:  inflation)

Futures are flat as markets digest Thursday’s rally and consider multiple reports that a debt ceiling deal is imminent.

Numerous media outlets have reported a two-year debt ceiling deal is imminent, and if that becomes official today we should expect a modest and temporary rally.

AI optimism/euphoria continued overnight with Marvell Technologies (MRVL) rising 18% on strong AI guidance.

Focus today will first be on the debt ceiling, and if a formal deal is announced with should expect a knee jerk rally, although by itself a debt ceiling compromise won’t be a sustainable bullish catalyst.  Outside of the debt ceiling, the key reports today include the Core PCE Price Index (E: 0.3% m/m, 4.6% y/y)  and Durable Goods Orders (E: -1.1%) and investors will want to see stability in both reports to hint at ongoing disinflation and a soft landing.  We also get Consumer Sentiment (E: 58.0) and if inflation expectations rise further in that report, it could become a headwind on stocks.

Tom Essaye Quoted in Big News Network on May 24th, 2023

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On a similar note, Sevens Report Research founder Tom Essaye said that “from a technical perspective, there are signs that a potential bottom for the dollar has been formed.” Click here to ad the full article.

Why A Soft Landing Is Still Good for Stocks

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What’s in Today’s Report:

  • Why A Soft Landing Is Still Good for Stocks
  • EIA Analysis and Oil Market Update

S&P 500 futures are solidly higher while Nasdaq futures surge 2% thanks to blow out NVDA earnings.

NVDA beat on revenue and EPS and raised guidance on strong AI chip demand, and the stock surged more than 20% after hours.

Fitch put the U.S. on “credit watch negative” as the potential “X” date for the debt ceiling is less than a week away.

Today focus will be on any debt ceiling progress (although none is expected with the looming holiday weekend) and on economic data, and the most important report is Jobless Claims (E: 248K) and markets will want to see that number flat or just slightly higher (another big jump would increase hard landing worries).

Other data today includes Revised Q1 GDP (E: 1.1%) and Pending Home Sales (E: 1.1%), but neither number should move markets.  On the Fed, we have two speakers today, Barkin (9:50 a.m. ET) and Collins (10:30 a.m. ET), but neither should move markets.

Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch on May 23rd, 2023

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Natural-gas prices have dropped by nearly half this year, despite output risks and higher demand prospects

The natural-gas market is reaching a historically pivotal phase of the year, with the price swings typically occurring in the summer and winter months, said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Why Is Consumer Spending Holding Up So Well?

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What’s in Today’s Report:

  • Why Is Consumer Spending Holding Up So Well?
  • Unemployment Rate Chart Indicates Full Employment
  • May Flash PMI Takeaways
  • Chart: S&P 500 Trend Remains Higher But Signs of Weakness Are Emerging

Equity futures are lower with global markets this morning as there has been no further progress in debt ceiling negotiations while data overnight pointed to stagflation.

Economically, U.K. CPI was 8.7% vs. (E) 8.3% y/y while the German Ifo Survey was weak across the board with Business Expectations notably falling to 88.6 vs. (E) 91.7. And sticky high inflation and fading growth prospects are a very negative scenario for global risk assets.

There are no market moving economic reports on the calendar for today which will leave traders primarily focused on the ongoing debt ceiling negotiations.

There is one Fed speaker: Waller at 12:10 p.m. ET and the May FOMC meeting minutes will be released at 2:00 p.m. ET which could shed some light on the Fed’s expected “pause.” Any indication that hikes may continue this summer would trigger volatility as current market odds of a June hike are less than 1 in 3.

Finally, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET that could move yields and have an influence on equity market trading in the afternoon.

Hard vs. Soft Landing Scoreboard Update

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What’s in Today’s Report:

  • Hard vs. Soft Landing Scoreboard Update

Futures are slightly higher mostly on momentum from Wednesday’s rally and despite more disappointing earnings, this time from Cisco (CSCO).

CSCO orders underwhelmed and that’s weighing on the stock (down 4% after hours) and limiting gains in futures.

There was no new news on the debt ceiling but optimism remains high and a deal is expected before the “X” date.

Focus today will be on economic data, because beyond any short-term debt ceiling drama (or resolution) the bigger issue for this market remains hard vs. soft landing.  Key reports today include (in order of importance):  Jobless Claims (E: 255K), Philly Fed (E: -20.0) and Existing Home Sales (E: 4.295M).  As has been the case, stability remains the key for stocks to extend the rally.

We also have two Fed speakers, Jefferson (9:05 a.m. ET) and Logan (10:00 a.m. ET), but they shouldn’t move markets.

Why Home Depot Earnings Point to a Soft Landing

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What’s in Today’s Report:

  • Why Home Depot Earnings Point to a Soft Landing
  • Retail Sales Data Takeaways
  • Debt Ceiling Barometer: 1-Month T-Bill Yield Steadies

Stock futures are rebounding modestly from yesterday’s declines this morning as traders await more clarity on the debt ceiling negotiations (1-Month yield is down 2 bp to 5.56%) and digest in-line European inflation data.

Economically, Eurozone HICP (their CPI equivalent) met estimates at 7.0% y/y with the Narrow Core reading falling 0.1% to 5.6%, also as expected but still well above target.

There is just one economic report this morning: Housing Starts & Permits (E: 1.405M, 1.430M) and no Fed officials are scheduled to speak.

Retailer earnings continue this morning with TGT ($1.74) reporting ahead of the bell and investors will be looking for more signs of “soft landing” spending trends as we saw with HD yesterday.

As far as other potential catalysts go, there is a 20-Yr. Treasury Bond auction at 1:00 p.m. ET today and any big move in yields could impact stocks (too weak would indicate inflation worries, too strong would underscore growing debt ceiling fears).

Why the “Pain Trade” Remains Higher

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What’s in Today’s Report:

  • Why the “Pain Trade” Remains Higher
  • Bullish Reversal in the Dollar Forming – Chart

Stock futures are slightly lower this morning as traders digest disappointing economic data from overseas and look ahead to today’s debt ceiling negotiations.

Economically, Chinese Fixed Asset Investment slowed in April while Industrial Production came in at just 5.6% vs. (E) 10.7% and Retail Sales rose to 18.4% vs. (E) 22.0%. The underwhelming data is continuing to pour some cold water on hopes that a robust recovery in China will help support broader growth in the global economy this year.

Looking into today’s session there are several economic releases to watch in the U.S. including (in order of importance): Retail Sales (E: 0.7%), Industrial Production (E: 0.0%), and the Housing Market Index (E: 45). Specifically, if Retail Sales is disappointing, that could rekindle hard-landing fears and pressure stocks.

Several Fed officials are also expected to speak today: Mester (8:15 a.m. ET), Bostic (8:55 a.m. ET), Williams (12:15 p.m. ET), and Logan (3:15 p.m. ET). A more cautious tone regarding policy plans would be welcomed while any decidedly hawkish commentary is likely to pressure markets.

Finally, the main focus today will be the debt ceiling talks between the Biden Administration and House Republicans as we are fast approaching the “X date” and prospects of a deal being reached remain very uncertain. Any reported progress on the topic will be well-received today and likely result in a modest relief rally but if concerns about the debt ceiling increase, expect equities to come under pressure.

 

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Why Negative News (Still) Isn’t Making Stocks Drop

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What’s in Today’s Report:

  • Why Negative News (Still) Isn’t Making Stocks Drop
  • Weekly Market Preview:  More Insights into Hard vs. Soft Landing This Week
  • Weekly Economic Cheat Sheet:  Retail Sales (Tues) the Key Report This Week

Futures are modestly higher following reports of progress on the debt ceiling negotiations over the weekend.

Another debt ceiling meeting is scheduled for Tuesday at the White House and major officials (including Biden and Yellen) stated progress was made in negotiations over the weekend, although a deal still isn’t likely this week.

Economically, Euro Zone IP slightly missed estimates.

Today there’s only one notable economic report, the May Empire Manufacturing Index (E: -3.70), and markets will want to see stability in the data to further hint towards a soft landing.

Looking at the Fed, there are numerous speakers today including Bostic (8:45 a.m. ET), Kashkari (9:15 a.m. ET), Barkin (12:30 p.m. ET) and Cook (5:00 p.m. ET) and while their comments may have a hawkish tone, the market firmly believes the Fed has paused on rate hikes and it’ll take Powell disavowing that notion for investors to reconsider.

Finally, debt ceiling headlines will likely continue, and don’t be shocked if there’s some pushback on the “progress” narrative from the weekend as the political gamesmanship kicks into high gear, with just over two weeks till the “X” date.