Economic Vitality and Potential Debt Deal Power U.S. Markets Advance

Barry Adams
26 May, 2023
New York City

Major averages on Wall Street scaled higher on the hopes that the ongoing debt ceiling standoff may be ending soon. 

The deal between President Joe Biden and Republican House Speaker Kevin McCarthy will increase the debt limit for two years and freeze the federal government spending for the next two years. 

The deal protects President Bidens from debt default worries before the next presidential election and also offers concessions to Republicans for limiting domestic spending and not expanding the IRS. 

Despite the market optimism surrounding the deal, a number of far right conservative republicans are voicing strong disapproval of the expected agreement. 

With debt default only a  few days away, the agreement still needs to be approved by the House and Senate, not an easy task when 535 lawmakers are expected to vote.  

The yield on Treasury notes rose after a measure of inflation widely followed by the Federal Reserve rose more than expected in April, indicating unabated inflationary forces. 

The latest report on the PCE index provided another signal for the Fed policymakers to continue its aggressive rate hike. 

After the report, Fed policymakers are more likely to lift interest rates by at least 25 basis points at the next meeting in June. 

Investors also reacted to a barrage of corporate earnings news ahead of Memorial Day weekend. 

 

Persona Consumption Expenditure Inflation Index Stays Elevated 

Personal consumption expenditure increased 0.4% in April from the previous month and rose 4.4% from a year ago, the U.S. Bureau of Economic Analysis reported Friday. 

Prices for goods increased 0.3% and prices for services increased 0.4% and food prices decreased less than 0.1%, and energy prices increased 0.7%.

Core personal consumption expenditure, which excludes food and energy, accelerated to 0.4% in April from March.  

On a yearly basis, core PCE increased 4.7%.  

 

Personal Spending Jumped 0.8% In April 

Personal income increased 0.4% from the previous month in April, according to estimates released today by the Bureau of Economic Analysis. 

Disposable personal income or DPI increased 0.4% and personal consumption expenditures or PCE increased 0.8%, rising at the fastest pace in three months. 

 

Durable Goods Orders Advanced 1.1% 

Durable goods orders increased 1.1% in April, slower than the upwardly revised 3.3% in March, the U.S. Census Bureau announced Friday.   

Excluding transportation, new orders decreased 0.2% and excluding defense, new orders fell 0.6%. 

The closely watched proxy for business spending, non-defense capital goods orders, excluding aircrafts, increased 1.4% in April after falling 0.6% in March. 

Shipments for manufactured goods declined 0.7% in April, following 0.7% increase in March. 

Inventories of manufactured goods increased 1.0% in April following a fall of 1.0% in March. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.5% to 4,174.13 and the Nasdaq Composite rose 0.6% to 12,808.47. 

For the week, the S&P 500 index increased 0.3% and the Nasdaq Composite advanced 2%. 

The yield on 2-year Treasury notes increased to 4.59%, 10-year Treasury notes edged up to 3.83% and 30-year Treasury bonds held at 3.99%. 

Crude oil rose $0.97 to $72.81 a barrel and natural gas prices rose 2 cents to $2.41 a thermal unit. 

 

U.S. Stock Movers

Costco Wholesale Corporation declined 0.3% to  $485.31 after the retailer reported mixed quarterly results. 

Ulta Beauty plunged 11.3% to $431.17 despite the company reporting higher revenue and earnings in the first quarter. 

The retailer lifted its full year sales outlook slightly and reiterated its earnings per share. 

RH declined 5.4% to  $240.86 after the home improvement retailer reported better-than-expected sales and earnings in the fiscal first quarter. 

However, the retailer estimated higher-than-expected markdowns in the second quarter and estimated weaker-than-expected fiscal second quarter revenue.  

Marvell Technology Inc soared 23.7% to $61.45 after the advanced semiconductor company delivered first quarter results ahead of expectations and said second quarter sales are expected to accelerate.

Gap Inc soared 14.2% to $8.48 after the struggling apparel retailer reported improvement in operating margin and a decline in air shipment expenses. 

The retailer reported net sales in the first quarter declined 6% to $3.2 billion and 3% decline in comparable sales. 

Net loss in the quarter shrank to $18 million from $144 million and diluted loss per share fell to 5 cents from 44 cents a year ago. 

 

European Markets Trim Weekly Losses 

European markets traded higher in a tentative rebound after three days of down days and bond yields continued to drift upwards. 

The U.S. debt ceiling talks appear to be heading in the right direction and expectations ran high that two sides are close to striking a deal as early as tomorrow, just in time to avoid a federal government default. 

The preliminary agreement will hold the federal government spending to fiscal 2023 level for the next two years to raise the U.S. debt ceiling level. 

 

UK Retail Sales Rebounded In April 

UK retail sales in April increased 0.5% from March, the Office for National Statistics reported Friday. 

Retail sales recovered on the back of higher food and non-food sales from the 1.2% decline in March. 

On a yearly basis, retail sales declined 3.0%, following a 3.9% in March. 

Food store sales rebounded to 0.7% increase in April after falling 0.8% in March and non-food store sales rose 1.0%, recovering from a 1.8% decline in March.  

The online retail sales across all channels increased 0.2% but fuel sales at pump stations declined 2.2% despite the recent decline in fuel prices. 

In the three months to April, retail trade sales increased 0.8% from the previous three months, the largest increase since August 2021. 

 

Europe Indexes & Yields 

The DAX index increased 1.2% to 15,983.97,  the CAC-40 index increased 0.8% to 7,319.18, and the FTSE 100 index increased 0.7% to 7,627.20. 

For the week, the DAX index declined 1.6%, the CAC-40 index fell 2.2% and the FTSE index dropped 1.7%. 

The yield on 10-year German Bunds inched up to 2.49%, French bonds traded higher to 3.08%, the UK gilts inched higher to 4.32% and Italian bonds increased to 4.37%.

The euro edged lower to $1.07, the British pound to $1.23 and the Swiss franc to 90.22 cents.

Brent crude increased 58 cents to $76.84 a barrel and the Dutch TTF natural gas decreased €0.93 to €24.52 per MWh.

 

Europe Stock Movers 

Mining companies advanced around 3% on the optimism surrounding the U.S. debt deal talks. 

Anglo American, Antofagasta and Glencore rose between 2.5% and 3%. 

Petrol station operator EG Group and supermarket chain Asda are in a final stage of merging their operations in a deal valued at £10 billion. 

Volkswagen Group increased 0.4% to €118.54 after the company and its subsidiary Audi reached a preliminary $85 million settlement with the Texas environmental agency for charges linked to the diesel cheating scandal. 

AstraZeneca Plc increased 0.3% to 11,678.0 pence after its two cancer drugs Imfinzi and Lynparza indicated positive results in late-stage trials. 

Casino Guichard Perrachon SA declined 8.7% to €6.18 after the grocery chain operator said it has initiated  court-backed discussions with its creditors.