U.S. House Vote Uncertainties Kept Indexes Lower, Nasdaq Jumped 6% In May

Barry Adams
31 May, 2023
New York City

Major averages on Wall Street traded lower ahead of the House vote on the debt ceiling deal. 

Leaders of both parties are hoping that the debt deal will be ratified by the House, despite some far-right representatives voicing their disapproval. 

The White House and Republican leaders agreed to suspend the debt ceiling for the next two years and freeze federal government spending for the next two fiscal years.  

Republican leaders are signaling the passage of the bill in the House despite a small group of lawmakers showing their displeasure with the agreement, highlighting that the spending cuts are not deep enough.    

“I think we have the votes to pass this today,” said Rep. Patrick McHenry, a key Republican negotiator for the debt deal, in an interview on CNBC TV channel on Wednesday. 

The U.S. federal government's debt is expected to rise by at least $1 trillion a year, because the government spending exceeds revenues by that amount annually. 

The U.S. government ramped up spending to support the faltering economy during the height of the coronavirus pandemic and between 2020 and 2021 the federal government provided $6.2 trillion of financial support, all funded with borrowed money. 

About 22 million jobs were lost during the peak of the pandemic months and the economy took another 29 months to recover those lost jobs, reflecting one of the fastest recovery of the job market in the last four decades.  

The government debt to GDP ratio soared to 129% in 2022, after the government enacted three stimulus measures to support family spending and protect jobs. 

In the market of stocks, the tech-heavy Nasdaq index advanced 6% and the S&P 500 index gained 0.4% in May. 

 

Tight Labor Market Conditions Prevailed In April 

The number of job openings in May unexpectedly increased, the Bureau of Labor Statistics reported Wednesday. 

Job openings increased 358,000 to 10.1 million at the end of April, rebounding from nearly a two-year low of 9.745 million in March.

Job market remains tight for the second year in a row and despite the multiple interest rate hikes, the labor market shows no sign of easing.   

In April, job openings increased in retail trade by 209,000, health care and social assistance by 185,000, and transportation, warehousing, and utilities  by 154,000. 

 Over the month, the number of hires changed little at 6.1 million  and total separations decreased to 5.7 million. 

Within separations, quits changed little at 3.8 million, while layoffs and discharges fell to 1.6 million.

The quit rate fell to 2.4% in April from 2.5% in March, and  dropped closer to the pre-pandemic monthly average between 2.3% and 2.4% in 2019.

 

U.S. Indexes & Yields 

The S&P 500 index decreased 0.6% to 4,179.83 and the Nasdaq Composite declined 0.6% to 12,935.29. 

The yield on 2-year Treasury notes decreased to 4.42%, 10-year Treasury notes edged down to 3.67% and 30-year Treasury bonds held at 3.90%. 

Crude oil declined for the second day in a row after China reported second  month of contraction in manufacturing sector. 

The official manufacturing purchasing manager's index declined for the second month to 48.8 in May from 49.2 in April, the National Bureau of Statistics reported Wednesday.     

The non-manufacturing purchasing manager's index, which tracks the confidence in the service and construction industries, slowed to 54.5 from 56.4 in April.    

In May, crude oil declined 9.5% and plunged 39% from a year ago.  

Crude oil fell $0.52 to $68.87 a barrel and natural gas prices increased 6 cents to $2.39 a thermal unit. 

 

U.S. Stock Movers

Advance Auto Parts, Inc plunged 30.50% to $78.30 after the auto parts retailer reported a sharp decline in earnings, cut its dividend and lowered its full-year estimate. 

The specialty retailer announced a quarterly dividend of 25 cents per share compared to $1.50 in the previous quarter. 

The company also slashed its annual earnings per share estimate between $6.0 and $6.50 from the previous outlook between $10.20 and $11.20.  

American Airlines Group Inc increased 1.8% to $14.88 after the international airline lifted its earnings outlook and revised higher operating margin. 

The airline revised higher second quarter earnings per share between $1.45 and $1.65 from the previously estimated range between $1.20 and $1.40. 

The company revised higher its margin estimate from between 11% and 13% to between 12.5% and 14.5%. 

Hewlett Packard Enterprise dropped 6.3% to $14.56 after the company announced mixed quarterly results. 

Sales in the latest quarter were $6.97 billion and adjusted earnings per share was 52 cents, both missed the expectations set by analysts. 

 

Growth Worries and Weak Resource Stocks Dragged European Markets Down

European markets turned lower after growth worries resurfaced and the U.S. debt ceiling revision faced critical voting from lawmakers later today. 

Major averages declined in London, Paris and Frankfurt on the worries that China's economic recovery may take longer than previously estimated. 

China's official manufacturing purchasing manager's index declined for the second month to 48.8 in May from 49.2 in April, the National Bureau of Statistics reported Wednesday.

The non-manufacturing purchasing manager's index, which tracks the confidence in the service and construction industries, slowed to 54.5 from 56.4 in April.    

Investors turned cautious as the U.S. debt ceiling agreement faced its first resistance from lawmakers in the lower house of Congress.

The full House of Representatives is expected to vote on the agreement as early as today and the Senate is likely to vote for the bill before the estimated default deadline June 5.

The House Ruling Committee in a narrow 7-to-6 vote approved the rules for debate and vote on the debt ceiling agreement later today. 

On the inflation front, France and Italy reported decline in consumer price inflation and Germany is expected to report its inflation reading later today. 

 

Italy's Consumer Inflation Slowed In April 

Italy's consumer price inflation slowed to 7.6% in May from 8.2% in April, the National Institute of Statistics ISTAT said Wednesday. 

Prices on a monthly basis rose at a slower pace of 0.3% in May from 0.4% in April. 

The preliminary estimate of inflation declined after prices of energy, transportation services and food products rose at a slower pace. 

Energy  price inflation slowed to 20.5% from 26.6% in April, processed food inflation eased to 13.4% from 14%, and transportation services inflation weakened to 5.5% from 6%.

However, elevated inflation was supported by the faster rise in costs of unprocessed food at 8.9% compared  to 8.4% in April, and habitational services rose at 3.4% from 3.2%.

Core consumer prices, which exclude unprocessed food and energy, slowed to 6.1% in May from 6.2% in April.

 

French Consumer Price Inflation Slowed In May 

Inflation forces ebbed in France in may after energy prices rose at a slower pace, the statistical office INSEE reported Wednesday. 

The consumer price inflation slowed to 5.1% in May from 5.9% in April, according to the preliminary estimate released by the government agency. 

On a monthly basis, inflation declined 0.1% in May from April, the first  monthly decline since December 2022. 

The inflation rate was the slowest since April 2022, but still stayed above the target rate of 2% set by the European Central Bank.  

Price increase slowed for energy at 2.0% from 6.8% in April, for food at 14.1% from 15.0%, for manufactured goods at 4.1% from 4.6%, and services at 3.0% from 3.2%.

However, tobacco products prices accelerated for the third month in a row. 

 

Europe Indexes & Yields 

The DAX index decreased 1.4% to 15,664.02, the CAC-40 index fell 1.5% to 7,098.70, and the FTSE 100 index dropped 1.01% to 7,446.14. 

The yield on 10-year German Bunds inched lower to 2.25%, French bonds traded lower to 2.82%, the UK gilts held at 4.17% and Italian bonds decreased to 4.07%.

The euro edged lower to $1.067, the British pound to $1.232 and the Swiss franc to 91.06 cents.

Brent crude decreased $1.05 to $72.65 a barrel and the Dutch TTF natural gas price for immediate month delivery increased €2.17 to €26.85 per MWh.

 

Europe Stock Movers 

Resource and energy stocks traded lower after China's official data showed manufacturing sector growth contracted at a faster pace in May. 

Glencore, Anglo American, Antofagasta, Shell Plc, TotalEnergies SE declined between 1% and 4%. 

Bloomsbury Publishing Plc increased 1.4% to 416.0 pence after the fiscal year 2023 revenue and earnings were ahead of market expectations. 

WH Smith Plc advanced 1.8% to 1,555.0 pence after the book retailer revised higher its full-year outlook. 

B&M European Value Retail SA  soared 8.20% to 510.58 pence after the discount retailer said adjusted core earnings in the fiscal year 2024 are expected to be higher.