Stocks Wavered, Treasury Yields Spiked After Debt Ceiling Talks Hit Realities and Approach Deadline

Barry Adams
19 May, 2023
New York City

Market optimism began to fizzle on Wall Street as reality of passing a debt deal began to set in. 

Even if President Biden and House Speaker Kevin McCarthy reach a deal as early as this Sunday, passing the bill in the House could take as much as ten days. 

The U.S. Senate may need at least six more days before the bill arrives for the president's signature. 

In other words, even if a deal is struck this weekend, passing it through chambers may be challenging to avoid the looming default deadline on June 1. 

Benchmark indexes turned negative in the afternoon trading amid growing uncertainties about the debt ceiling talks.  

Market sentiment turned negative after Republican negotiators walked out of the room raising stakes higher on Capitol Hill. Moreover, not all lawmakers are convinced that the June 1 deadline is the firm deadline and by one estimate lawmakers may have an additional week to review the bill.  

Debt drama is likely to continue for another two weeks causing more market volatility as the Senate is in recess and not scheduled to gather until May 29, making the tight deadline even tighter. 

In other news, Federal Reserve chair Jerome Powell said at a conference in Washington, D.C. that stress in the regional banks has been mostly halted after the steps taken by the central bank. 

Powell added developments in the mid-size banks "are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation.”

“So as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals,” he added. 

Chairman Powell acknowledged that despite the recent cooling of inflationary forces, overall inflation on balance is still too high. 

The Nasdaq index is trading near one-year high and the S&P 500 index is hovering at a 9-month high. European markets also traded at new record highs and the Nikkei index in Tokyo closed at a 33-year high. 

Financial markets have been on edge for two weeks on the worries that the U.S. Treasury may default on or after June 1 its debt obligation if the $31.4 trillion debt ceiling is not lifted. 

Talks of U.S. default had kept investors anxious and global markets in check amid the debt talk uncertainties. 

In addition, rate hike worries resurfaced this week after a chorus of Fed officials stressed that the current economic data do not support a case for rate hike. 

The yield on 2-year and 10-year Treasury notes jumped to highs not seen in two months on the expectation that rates may be revised higher at the next meeting on June 13-14.   

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.2% to 4,207.69 and the Nasdaq Composite added 0.1% to 12,708.63. 

The yield on 2-year Treasury notes increased to 4.32%, 10-year Treasury notes edged up to 3.70% and 30-year Treasury bonds held at 3.95%. 

Crude oil rose $0.68 to $72.54 a barrel and natural gas prices rose 6 cents to $2.65 a thermal unit. 

 

U.S. Stock Movers 

Foot Locker Inc plunged 24.1% to $24.55 after the specialty  retailer reported weaker-than-expected sales and earnings in the first quarter. 

The athleticwear maker reported first quarter revenue of $1.93 billion and adjusted earnings per share of 70 cents. 

Deere & Company increased 3.3% to $382.83 after the agriculture equipment maker reported better-than-expected quarterly results. 

The Children's Place Inc declined 5.8% to $23.20 ahead of the specialty apparel retailer's first quarter results next week. 

Farfetch Ltd soared 26.1% to $5.46 after the online fashion platform reported higher-than-expected quarterly results. 

Revenue in the first quarter increased 8% to $476.2 million from $435.9 million and the company swung to a profit of $728.8 million from a loss of $174.3 million and diluted loss per share shrank to 37 cents from 43 cents a year ago. 

Applied Materials, Inc fell 2.7% to $126.36 after the semiconductor equipment maker reported mixed quarterly results. 

Revenue in the fiscal second quarter ending in April increased 6% to $6.6 billion and gross margin of 46.7%. 

Net income increased 3% to $1.57 billion from $1.53 billion and diluted earnings per share increased to $1.84 from $1.74 a year ago. 

 

Record High European Markets, Bond Yields Approach to 2-month Highs 

Optimism ruled in European trading after positive corporate earnings and weakening wholesale inflation in Germany supported market sentiment. 

Corporate earnings have met or exceeded investor expectations, supporting the advance of benchmark indexes to record highs. 

The DAX index and the CAC-40 index traded at new record highs after banks, insurance companies and industrial equipment makers reported higher-than-expected earnings in the first quarter.  

The progress in the U.S. debt ceiling talks also contributed to the market momentum. 

Market expectations rose after the U.S. President Biden and congressional leader Kevin McCarthy vowed to avoid the government default. 

 

Germany's Wholesale Inflation Slowed to 25-month Low 

Germany's producer price inflation slowed for the seventh month in a row after energy prices declined, the Federal Statistics Office reported Friday. 

The measure of wholesale inflation rose at a slower pace of 4.1% from 6.7% increase in March. On a monthly basis, prices advanced 0.3%. 

Producer price inflation in April was driven by a jump of 6.8% in prices for capital goods, 11.4% in non-durable goods, 2.8% in energy and 0.2% in intermediate goods.  

Wholesale prices, excluding energy, rose 4.8% in April, slower than 7.9% in March. 

 

Europe Indexes & Yields 

The DAX index increased 0.7% to 16,275.38,  the CAC-40 index rose 0.6% to 7,491.96, and the FTSE 100 index advanced 0.2% to 7,756.87. 

For the week, the DAX index advanced 2.1%, the CAC-40 index rose 0.7% and the FTSE 100 index edged up 0.02%. 

The bond yields in the region advanced to 2-month highs and the UK bond yields jumped to 7-month high as worries of the aggressive rate path resurfaced. 

The yield on 10-year German Bunds inched up to 2.47%, French bonds traded higher to 3.06%, the UK gilts inched higher to 4.01% and Italian bonds increased to 4.33%.

The euro edged lower to $1.079, the British pound to $1.241 and the Swiss franc to 90.22 cents.

Brent crude increased 78 cents to $76.64 a barrel and the Dutch TTF natural gas increased €0.46 to €30.25 per MWh.

 

Europe Stock Movers 

Concentric AB increased 3.3% to SEK215.0 after the Swedish pump maker won a SEK201 million order for a high voltage cooling solution from a North American zero-emission truck maker. 

The hydrogen fuel cell are useful in achieving zero emission targets, reflecting heat and water as the sole emissions after combustion. 

C&C Group Plc decreased 14.5% to 130.96 pence after the beverage maker   announced a one-time charge of €25 million. 

The maker of beer, cider and wines said it faced severe business disruptions while implementing enterprise resource planning system in the Matthew Clark and Bibendum business and the charge reflects the cost associated with restoring service level and lost revenue. 

The company reiterated its annual operating profit outlook of €84 million and said it plans to reinstate its dividend for the fiscal year 2023. 

Smiths Group Plc increased 0.9% to 1,720.0 pence after the company lifted its annual organic revenue growth outlook. 

Titon Holdings plc dropped 8.1% to 80.0 pence after the UK-based windows and ventilations systems supplier said fiscal year 2023 results are likely to be below market expectations.