S&P 500 and Nasdaq Rebound 1% After Biden and McCarthy Vow to Avoid Default

Barry Adams
17 May, 2023
New York City

Stocks scaled higher after negotiating parities showed willingness to compromise and vowed to avoid catastrophic debt default. 

Benchmark indexes inched higher after President Joe Biden and House Speaker Kevin McCarthy offered optimism after the meeting on Tuesday. 

President Biden echoed positive sentiment just before he departed to Japan to attend a meeting of G7 leaders.  

Moreover, the White House said President Biden canceled the second leg of an international trip after completing the meeting with G7 leaders in Japan. 

President Biden was scheduled to visit Papua New Guinea and Australia and meet leaders of Australia, Japan and India.  

President Biden and congressional leaders are hoping to finalize an agreement by this weekend and lift the current debt ceiling of $31.4 trillion. 

The lifting of the debt ceiling does not allow the government to increase its spending but finances the spending plan that is already approved by the U.S. Congress and the president. 

Despite the looming debt default crisis, three leading rating agencies are silent. 

S&P Global, Moody's and Fitch are quick to express their opinion or threaten a debt rating revision in a similar situation of any other nation other than the U.S. 

The silence of three rating agencies and lack of their stance on the U.S. government debt in the throes of debt negotiations also highlight their double standards when it comes to rating a debt issued by other nations. 

Investors are hoping that a clarity on debt ceiling may calm market sentiment and keep focus on economic growth and rate path. 

The latest data on the housing market showed higher prices and rising interest rates dented housing starts and building permits in April.  

 

Higher Rates and Prices Weigh On Housing Market 

Housing starts advanced 2.2%, building permits declined 1.5% and completions dropped 10.4% in April, the U.S. Census Bureau reported Wednesday. 

Seasonally adjusted building permits increased to an annual rate of 1.416 million,  housing starts to 1.401 million and completions to 1.375 million. 

Building permits declined 21.1%, starts fell 22.3% and completions rose 1% from a year ago. 

Higher home price and elevated mortgage rates continue to weigh on the housing market. 

Single-family housing permits increased 3.1% to 855,000 units, housing starts rose 1.6% to 846,000 and housing completions fell 6.5% to 971,000. 

 

Mortgage Applications Declined 5.7% 

Applications for new mortgages declined 5.7% in the week ending on May 12, reversing an increase of 6.3% in the previous week, reported Mortgage Bankers Association Wednesday. 

Seasonally adjusted composite index declined from the previous week and unadjusted index decreased 6.0%.

The Refinance Index decreased 8% from the previous week and was 43% lower than the same week one year ago. 

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $726,200 or less increased to 6.57% from 6.48%, with points including origination fee held at 0.61% for 80% loan-to-value ratio loans.

 

U.S. Indexes & Yields 

The S&P 500 index increased 1.15% to 4,159.80 and the Nasdaq Composite rose 1.24% to 12,498.23.

The yield on 2-year Treasury notes increased to 4.11%, 10-year Treasury notes edged up to 3.54% and 30-year Treasury bonds held at 3.86%. 

Crude oil rose $1.90 to $72.75 a barrel and natural gas prices rose 3 cents to $2.40 a thermal unit. 

 

U.S. Stock Movers 

Target Corp increased 1.7% to $159.62 after the retailer reported only 0.6% increase in revenue to $25.32 billion. Store traffic increased 0.9% on top of 3.9% in the quarter a year ago. 

Net income declined 5.8% to $950 million from $1.0 billion and diluted earnings per share fell to $2.05 from $2.16 a year ago. 

EVgo Inc dropped 13.4% to $4.96 after the electric vehicle charging stations network operator reported a $125 million secondary offering. 

Keysights Technologies Inc jumped 7.7% to $157.74 after the company reported higher-than-expected fiscal second quarter adjusted earnings and offered a positive outlook for the current quarter. 

 

European Markets Hold After Inflation Stayed Near Record High 

European markets hugged the flatline after consumer inflation accelerated in April and automobile sales in April slowed from the previous month. 

Stocks were in a holding pattern after inflation accelerated in April despite the cooling of energy prices in the European Union as inflation but service prices rose at a faster pace. 

Automobile stocks advanced after unit sales rose in April and electric vehicles increased market share. 

Investors remained cautious and awaited the outcome of the debt ceiling talks in the U.S. as president Joe Biden and congressional leaders struggled to find a common ground. 

Despite the debt ceiling talks uncertainties, global markets are hoping that the U.S. lawmakers will lift the debt ceiling higher and avoid the U.S. government default. 

The U.S. Treasury is estimated to run out of funds in about three weeks, yet three leading rating agencies S&P Global, Moody's and Fitch have been silent. 

 

Consumer Inflation Accelerated In April

Consumer price inflation in the Euro Are increased to 7.0% in April, Eurostat reported Wednesday.

Inflation accelerated from a 13-month low of 6.9% in March after energy prices rebounded to 2.4% increase in April from 0.9% decline in March and cost of services accelerated to 5.2% from 5.1%. 

Core inflation, which excludes food, energy, alcohol and tobacco, slowed to 5.6% in April from the record high 5.7% in March.  

Hungary led the region with consumer price inflation of 24.5%, followed by 15% in Latvia, 14.3% in Czechia, and 14.% in Slovakia. 

Annual inflation in Italy was 8.7%, Germany 7.6%, France 6.9% and Spain 3.8%.  

 

EU Car Registration Growth In April Slowed from March 

Car registration in the European Union soared 17.2% to 803,188 in April, the European Automobile Manufacturers Association reported Wednesday. 

Passenger car sales increased for the ninth month in a row and sales in the first four months to April rose 17.8% from a year ago to 3.5 million, still down 22.8% from the same period in 2019.  

Among the four largest markets in the European Union, unit sales surged 33.7% in Spain, 26.9% in Italy, 16.7% in France and 7.9% in Germany.   

Battery electric car share of the market increased to 11.8% from 9.1%, hybrid car share rose to 24.8% and petrol cars led by 38.2%. 

 

Europe Indexes & Yields 

The DAX index increased 0.5% to 15,951.14, the CAC-40 index fell 0.09% to 7,399.44 and the FTSE 100 index advanced 0.40% to 7,723.39. 

The yield on 10-year German Bunds inched up to 2.31%, French bonds traded slightly higher to 2.89%, the UK gilts inched lower to 3.79% and Italian bonds increased to 4.18%.

The euro edged lower to $1.082, the British pound to $1.244 and the Swiss franc to 89.91 cents.

Brent crude increased $1.90 to $76.84 a barrel and the Dutch TTF natural gas increased €0.05 to €31.78 per MWh.

 

Europe Stock Movers 

AstraZeneca increased 0.6% to 12,146.0 pence after the drug maker reported positive results in the discovery of a lung cancer trial. 

SAP SE advanced 1.6% to €123.28 after the German software company announced a stock repurchase program of up to €5 billion.  

Commerzbank AG declined 6.6% to €9.23 despite the German lender saying net income in the first quarter nearly doubled. 

London Stock Exchange Group Plc dropped 3.5% to 8,172.0 pence after a consortium of investors sold stocks in the exchange operator worth about £2.7 billion.  

British Land Company PLC decreased 5.2% to 358.30 pence after the company reported a pre-tax loss in the fiscal year 2023 ending in March. 

JD Sports Fashion Plc declined 5.8% to 160.45 pence after the specialty retailer said pre-tax income declined the fiscal year 2023. 

Siemens AG increased 2.5% to €153.42 after the Germany based industrial engineering company lifted its annual sales outlook on stronger order inflow and higher-than-expected profit in the fiscal second quarter. 

 

Japan's GDP Expanded In the First Quarter

Japan's economy expanded at an annual pace of 1.6% in the first quarter, the Cabinet Office reported Wednesday.

The faster than expected economic growth bodes well for the third largest economy of the world, which has struggled with five quarters of contraction in the last nine quarters.

Rising consumer and business spending were the key drivers of growth in the first quarter, but the international trade provided a headwind as exports of automobiles and semiconductor machinery lagged.  

The Nikkei 225 index closed up 0.8% to 30,093.59 and inched closer to a 32-year high reached seven months ago on September 17, 2021. 

In other Asian markets, the Sensex index in Mumbai dropped 0.6%, the Hang Seng index in Hong Kong dropped 2.1% and the Shanghai Composite index declined 0.2%.