Debt Ceiling Worries May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see further downside after coming under pressure over the course of the previous session.

Lingering concerns about lawmakers’ ability to reach an agreement on increasing the U.S. debt ceiling may continue to weigh on Wall Street.

While negotiations have continued this week, traders remain worried about reports suggesting a lack of progress towards a deal.

“Talks were always going to go down to the wire and an 11th hour deal is still expected to be made,” said Edward Moya, senior market analyst at OANDA. “What could be making some investors nervous is that some House Republicans might not be convinced that the X-date of June 1st is accurate or that a default would be the end of the world.”

He added, “If the actual X-date ends up being closer to June 7th, that means we could see market stress build up leading to that point.”

Nonetheless, trading activity may be somewhat subdued ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting later in the day.

The minutes may shed additional light on the outlook for interest rates amid widespread expectations the Fed will leave rates unchanged at its next meeting in mid-June.

U.S. stocks ended notably lower on Tuesday after staying weak throughout the day’s session due to sustained selling at several counters.

A lack of significant progress in U.S. debt ceiling negotiations weighed on sentiment. Traders largely shrugged off data showing fairly sharp growth in the nation’s private sector activity.

The major averages all ended notably lower. The Dow ended lower by 231.07 points or 0.7 percent at 33,055.51. The S&P 500 ended down 47.05 points or 1.1 percent at 4,145.58, while the Nasdaq settled at 12,560.25, down 160.53 points or 1.3 percent.

U.S. President Joe Biden and House Speaker Kevin McCarthy said they held productive talks on Monday but there was no agreement on how to raise the government’s $31.4 trillion debt ceiling.

“While there are areas of disagreement, the Speaker and I, and his lead negotiators Chairman McHenry and Congressman Graves, and our staffs will continue to discuss the path forward,” Biden said.

On the U.S. economic front, the S&P Global US Composite PMI rose to 54.5 in May 2023, up from 53.4 the month before, a preliminary estimate showed. The latest reading signaled the fastest pace of expansion in the country’s private sector since April 2022.

The S&P Global Flash US Manufacturing PMI declined to 48.5 in May of 2023 from 50.2 in April, well below forecasts of 50, preliminary estimates showed.

The S&P Global US Services PMI increased to 55.1 in May 2023, up from 53.6 the month before and well above market expectations of 52.6, a preliminary estimate showed.

Data from the Commerce Department showed new home sales in the U.S. jumped by 4.1 percent to an annual rate of 683,000 in April after surging by 4 percent to a revised rate of 656,000 in March.

Economists had expected new home sales to decrease to an annual rate of 670,000 from the 683,000 originally reported for the previous month.

Commodity, Currency Markets

Crude oil futures are jumping $1 to $73.91 a barrel after climbing $0.86 to $72.91 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,985.50, up $11 compared to the previous session’s close of $1,974.50. On Tuesday, gold surged edged down $2.70.

On the currency front, the U.S. dollar is trading at 138.67 yen compared to the 138.59 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0786 compared to yesterday’s $1.0770.

Asia

Asian stocks fell on Wednesday as worries over the U.S. debt ceiling persisted and investors awaited cues from industrial sector surveys in Europe and the United States.

Spot gold edged lower, and the dollar index held steady as another round of U.S. debt ceiling negotiations ended without a resolution.

The kiwi dollar came under pressure against other major currencies after the Reserve Bank of New Zealand surprised markets with a dovish 25 basis point rate hike, saying that this would be the final rate hike of the current tightening cycle.

Oil prices hit three-week highs after a warning from the Saudi energy minister to speculators raised the prospect of further OPEC+ output cuts.

Chinese markets tumbled amid mounting concerns over the outlook for the country’s economy. The benchmark Shanghai Composite Index slumped 1.3 percent to 3,204.75, while Hong Kong’s Hang Seng Index plunged 1.6 percent to 19,115.93.

Japanese shares fell notably as concerns over the U.S. debt limit impasse overshadowed survey results showing that business sentiment at big manufacturers turned positive for the first time in 2023.

The Nikkei 225 Index fell 0.9 percent to 30,682.68, while the broader Topix Index settled 0.4 percent lower at 2,152.40.

Cosmetics giant Shiseido slumped 5.6 percent and CyberAgent Inc., a major investor in a new share sale in Rakuten Group Inc., tumbled 4.7 percent. Rakuten shares gave up 2 percent.

Toyota Motor jumped 5.4 percent, rebounding from a sudden plunge in the final minute of trading on Tuesday.

Seoul stocks ended on a flat note as data showed business sentiment improved slightly for June. The Kospi finished marginally lower at 2,567.45.

Australian markets ended lower, dragged down by miners and healthcare stocks. The benchmark S&P/ASX 200 Index dropped 0.6 percent to 7,213.80, while the broader All Ordinaries Index closed 0.7 percent lower at 7,392.90.

Mining heavyweights BHP and Rio Tinto fell over 2 percent, tracking weak iron ore prices in top steel producer China.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index rose 0.2 percent to 11,971.83 as the Reserve Bank indicated that the tightening cycle is over.

Europe

European stocks have tumbled on Wednesday as U.S. debt ceiling talks drag on and investors wait for the minutes from the Federal Reserve’s meeting earlier in May for additional clues on the outlook for interest rates.

The U.S. Treasury Department has asked federal agencies whether they can make upcoming payments at a later date, the Washington Post reported, citing two people familiar with the matter.

U.S. Treasury Secretary Janet Yellen previously warned lawmakers that a default in early June is “highly likely.”

On a light day on the economic front, official data showed U.K. consumer price inflation slowed in April, but the core rate unexpectedly accelerated.

The consumer price index registered an annual increase of 8.7 percent in April after a 10.1 percent gain in March. Inflation was forecast to ease to 8.3 percent.

Input price inflation hit its lowest level since February 2021, while factory gate inflation reached the weakest since July 2021.

While the French CAC 40 Index has plunged by 1.7 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both down by 1.6 percent.

Swedish gaming group Embracer has plummeted after the group trimmed its full-year adjusted EBIT forecast and said a $2bn strategic partnership deal had fallen through.

Home improvement retailer Kingfisher has also fallen after its first-quarter comparable sales fell 3.3 percent on a constant currency basis.

Insurer Aviva has also moved notably lower after reporting a slowdown of cash inflows at its wealth division for the first quarter.

On the other hand, British energy company SSE has moved to the upside after reporting nearly doubling of its annual profits.

Tullow Oil has also moved sharply higher after the oil exploration firm retained its full-year production outlook.

U.S. Economic Reports

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 19th at 10:30 am ET.

Crude oil inventories are expected to rise by 0.8 million barrels after jumping by 5.0 million barrels in the previous week.

At 12:10 am ET, Federal Reserve Board Governor Christopher Waller is due to speak on the economic outlook before the University of California Santa Barbara conference: 2023 Santa Barbara County Economic Summit.

The Treasury Department is due to announce the results of this month’s auction of $43 billion worth of five-year notes at 1 pm ET.

At 2 pm ET, the Federal Reserve is scheduled to release the minutes of its latest monetary policy meeting, when the central bank raised interest by another 25 basis points.

Stocks In Focus

Shares of Analog Devices (ADI) are moving sharply lower in pre-market trading after the chipmaker reported better than expected fiscal second quarter results but warned of a drop in revenue for the current quarter.

Financial software company Intuit (INTU) may also come under pressure after reporting fiscal third quarter revenue that missed analyst estimates.

Meanwhile, shares of Kohl’s (KSS) are seeing substantial pre-market strength after the retailer reported an unexpected fiscal first quarter profit.

Cybersecurity firm Palo Alto Networks (PANW) is also likely to move to the upside after reporting better than expected fiscal third quarter earnings and providing upbeat guidance.