Growing List of Market Worries Now Include Debt Ceiling Uncertainties

Barry Adams
09 May, 2023
New York City

Stocks remained in the downward trend ahead of two key inflation reports over the next two days. 

Stocks remained in the downward trend ahead of two key inflation reports over the next two days and debt ceiling uncertainty. 

Benchmark indexes traded sideways ahead of the consumer price inflation report Wednesday and producer price inflation report on Thursday.  

Debt ceiling uncertainty and the looming Federal government shutdown was added to a list of market worries ranging from future rate path, economic slowdown, and regional banking worries. 

Stocks have been on the defensive on a growing realization that the regional banking crisis is not likely to go away soon, despite the drumbeat of assurances offered by the Federal Reserve and Treasury officials. 

The Federal Reserve is struggling to tackle high inflation while avoiding the economy slipping into a deeper slowdown and healthy labor market. 

Despite the ten rate hikes over the last fourteen months, inflation is still significantly higher than the Fed's preferred target rate of 2%. 

Moreover, higher rates have dented balance sheets of banks after Treasury securities declined to reflect higher yields, forcing banks to slow lending to customers and shore up weakening capital bases. 

Treasury Secretary Janet Yellen confirmed in an interview with CNBC that there are no plans to halt targeted short selling in regional bank stocks. 

However, the U.S. Treasury is open to working with the Congress in expanding insurance limit for bank deposits, added Yellen. 

With no policy change in the immediate future and interest rates are likely to remain elevated, the decline in regional bank stocks is likely to continue. 

KRE, SPDR Regional Banking ETF, declined 2% in Monday's trading and extended this year's losses to 35.6%.    

New York Fed President John Williams reminded investors that it will take time for the Federal Reserve's policy steps to lower inflation and "return it to our target rate of 2%."

In overseas trading European markets traded lower and the Hang Seng Index in Hong Kong declined 2% after tech stocks led the decliners. 

China's export growth slowed in April and trade surplus soared from a year ago but imports declined for the seventh month in a row reflecting uneven post-Covid economy recovery. 

 

China's Export Growth Slowed In April 

China's international trade data showed a sustained recovery for its goods for the second month in a row but weak demand at home led to the decline in imports for the seventh month in a row. 

China's exports rose 8.5% from a year ago in April to $295.42 billion, slower than the 14.5% rise in March according to the latest data released by the General Administration of Customs of China. 

Imports declined 7.9% in April to $205.21 billion, down from a 1.4% decline in March.  

Trade surplus in April soared to $90.21 billion from $49.47 billion a year ago.

On a monthly basis, exports decreased 6.4% and imports fell 9.7%. 

 

U.S. Indexes & Yields 

The S&P 500 index decreased 0.5% to 4,119.17 and the Nasdaq Composite fell 0.6% to 12,179.55.  

The yield on 2-year Treasury notes hovered at 4.00%, 10-year Treasury notes edged up to 3.499% and 30-year Treasury bonds held at 3.82%. 

Crude oil fell 75 cents to $72.42 a barrel and natural gas prices rose 3 cents to $2.25 a thermal unit. 

 

U.S. Stock Movers 

PayPal Holdings Inc decreased 7.2% to $70.50 after the payment services provider said net revenue in the first quarter increased 9% to $7.04 billion from $6.5 billion and net income increased 56% to $795 million from $509 million and diluted earnings per share increased to 70 cents from 43 cents a year ago. 

Total payment volume soared 10% from a year ago to $354.5 billion from $322.9 billion and payment transactions rose 13% to 5.8 billion. 

Total active accounts on a trailing 12 months basis increased 1% to 433 million and payment transactions per active accounts increased 13% to 53.1 million. 

In the first quarter, the company repurchased approximately 19 million of its shares for $1.4 billion and repurchased approximately 48 million shares for $4.1 billion.  

Lucid Group plunged 9.7% to $6.98 after the luxury electric vehicle marker said revenue in the first quarter increased to $149.4 million from $57.7 million and net loss widened to $779.5 million from $604.7 million and diluted loss per share increased to 43 cents from 36 cents a year ago. 

The electric vehicle company produced 2,314 units and delivered 1,406 units. The company said liquidity at the end of the quarter was $4.1 billion.  

 

European Markets Hover Near Record Highs

European stocks traded near flat-line as investors looked ahead to inflation reports from the U.S. 

Benchmark indexes traded lower and investors mulled over rate path economic slowdown amid persistent inflation worries. 

U.S. consumer price inflation report is scheduled to be released on Wednesday followed by the producer price inflation report on Thursday. 

Investors are hoping that lower crude oil and natural gas prices will lower headline inflation in April and core inflation will also remain flat near 4.5%. 

On Thursday the Bank of England is expected to announce its interest rate decision and investors are anticipating a rate increase of at least 25 basis points as the island nation struggles with high inflation driven by food and energy prices.  

Despite challenging economic data, European market indexes are trading near record high levels and corporations are reporting record sales and earnings. 

 

French Trade Deficit Improved On Lower Energy Costs

The French trade deficit declined to €8 billion in March, following a downwardly revised deficit of €9.3 billion in February, the Ministry of Economy and Finance reported Tuesday. 

Imports fell 3.1% from the previous month to a nearly one year low of €50.5 billion and exports decreased 1.2% to €58.5 billion.

Trade deficit improved because of the sharp fall in energy import prices for the second quarter in a row. 

Trade deficit in the first quarter improved to €29.8 billion from €33.5 billion a year ago after exports increased to €151.2 billion from €141.0 billion and imports jumped to €180.9 billion from €174.5 billion a year ago.    

 

Europe Indexes & Yields 

The DAX index decreased 0.3% or 44.21 points to 15,908.29, the CAC-40 index fell 0.9% or 61.80 points to 7,379.11 and the FTSE 100 index fell 0.5% or 35.26 to 7,743.21. 

For the year so far to the close of Monday, the DAX index increased 13%, the CAC-40 index 11.4% and the FTST 100 index about 2.4%. 

The yield on 10-year German Bunds inched up to 2.30%, French bonds traded slightly higher to 2.90%, the UK gilts inched higher to 3.80% and Italian bonds advanced to 4.23%.

The euro edged higher to $1.095, the British pound to $1.264 and the Swiss franc to 89.14 cents.

Brent crude fell 56 cents to $76.44 a barrel and the Dutch TTF natural gas decreased €0.52 to €36.36 per MWh.

 

Europe Stock Movers 

Fresenius Medical SE increased 6.9% to €27.21 after the German dialysis company reported adjusted earnings that were ahead of expectations. 

Revenue in the first quarter increased 3.4% to €4.7 billion and net income fell 45.1% to €86 million from €157 million and basic earnings per share declined to 29 cents from 54 cents a year ago. 

Adjusted earnings per share, which excludes the U.S. Provider Relief Funding and Ukraine war related items among other adjustments, declined to 53 cents from 67 cents a year ago. 

Fresenius forecasted 2023 annual revenue "to grow at a low to mid-single digit percentage rate" from €19.39 billion and operating income to remain "flat or decline by up to a high-single digit percentage rate" from €1.54 billion. 

Banco BPM SpA increased 4.99% to €3.95 after the Italian bank reported stronger-than-expected earnings and the bank lifted its annual outlook for 2023 and 2024. 

Net interest income in the first quarter increased 38.9% to 779.28 million from 561.18 million and net income advanced 49.2% to 265.32 million from 177.80 million a year ago. 

The company forecasted 2023 annual earnings of €1.1 billion or 75 cents from the previous estimate of 60 cents and 2024 earnings of €1.4 billion and earnings per share of 90 cents from the previous estimate of 75 cents. 

The company also announced its plan to distribute dividends of €1.25 billion in the next two years. 

Swedish real estate company SBB declined 12.6% to a five-year low of SEK 7.34 after the company halted its dividend and canceled its SEK 2.63 billion rights offering after S&P Global lowered its debt rating to junk level.   

Purplebricks Group PLC plunged 61.1% to 2.34 pence after the UK-based online real estate company said it may not return to positive cash generation in early fiscal 2024 as previously estimated.  

JD Sports Fashion PLC increased 2.2% to 165.55 pence after the UK-based specialty retailer proposed to acquire France-based Groupe Courir for €520 million. 

Daimler Truck Holding AG declined 4.3% to €28.07 after the company reiterated its annual outlook and confirmed previously announced preliminary results.