Stocks Slide After Republicans Pause Debt Ceiling Negotiations

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.35%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.36%.

GOP negotiators halted debt ceiling discussions with the White House this morning.  “Until people are willing to have reasonable conversations about how you can actually move forward and do the right thing, then we’re not gonna sit here and talk to ourselves,” said Representative Garret Graves, R-La. 

Fed Chair Powell spoke this morning in a panel discussion during a monetary policy research conference hosted by the Federal Reserve in Washington. Powell said, “The financial stability tools helped to calm conditions in the banking sector. Developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation." He added, “So as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals.”

Global bond yields are higher.  The 10-year T-note yield climbed to a 2-month high of 3.719% and is up +6.1 bp at 3.707%.  The 10-year German bund yield rose to a 3-1/2 week high of 2.500% and is up +1.3 bp at 2.459%, and the UK 10-year gilt yield climbed to 6-3/4 month high of 4.093% and is up +7.8 bp at 4.035%.

On the bullish side for stocks, Catalent rebounded from a -5% loss in overnight trading and is up more than +17% after CEO Maselli said the company is “making progress” to reduce costs following its rapid expansion during the pandemic.  Also, Deere & Co is up more than +4% after reporting Q2 net income well above consensus and raising its full-year net income forecast.  In addition, energy stocks are moving higher, with the price of WTI crude oil climbing to a 1-week high.

On the bearish side, sneaker makers and athletic retailers are falling today, led by a -25% plunge in Foot Locker after the company cut its full-year sales forecast.  Also, chip makers are under pressure today after Applied Materials said Q3 net sales would decline as the memory-chip slump weighs on its business.  In addition, Ulta Beauty is down more than -3% after Oppenheimer cut its price target on the stock.

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.95%.  China’s Shanghai Composite closed down -0.42%, and Japan’s Nikkei Stock Index closed up +0.77%. 

Today’s stock movers…

Catalent (CTLT) rebounded from a -5% loss in overnight trading and is up more than +17% to lead gainers in the S&P 500 after CEO Maselli said the company is “making progress” to reduce costs following its rapid expansion during the pandemic.

Deere & Co (DE) is up more than +4% after reporting Q2 net income of $2.86 billion, well above the consensus of $2.49 billion, and raised its full-year net income forecast to $9.25 billion-$9.50 billion from a previous forecast of $8.75 billion-$9.25 billion, stronger than the consensus of $8.92 billion.

Energy stocks and energy service providers are moving higher today, with the price of WTI crude oil climbing to a 1-week high.  Occidental Petroleum (OXY) and ConocoPhillips (COP) are up more than +2%.  Also, Diamondback Energy (FANG), Devon Energy (DVN), Exxon Mobil (XOM), Marathon Oil (MRO), and Schlumberger (SLB) are up more than +1%.  

Nat-gas producers are climbing today after nat-gas prices rallied more than +2% to a 2-1/2 month high.  EOG Resources (EOG) and Pioneer Natural Resources (PXD) are up more than +2%.  Also, Coterra Energy (CTRA) and WEC Energy Group (WEC) are up more than +1%.

Globant SA (GLOB) is up more than +9% after reporting Q1 revenue of $472.4 million, above the consensus of $471.1 million, and forecast full-year revenue of at least $2.07 billion, better than the consensus of $2.06 billion.

Bloom Energy (BE) is up more than +5% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $20.

Sneaker makers and athletic retailers are falling today, led by a -25% plunge in Foot Locker (FL) after cutting its full-year sales forecast to a decline of -6.5% to -8% from a prior view of -3.5% to -5.5%.  Also, VF Corp (VFC) is down more than -6% to lead losers in the S&P 500.  In addition, Dick’s Sporting Goods (DKS) is down more than -5%, and Nike (NKE) is down more than -3% to lead losers in the Dow Jones Industrials.  Finally, Under Armour (UAA) is down more than -3%.

Chip makers are under pressure today, with Applied Materials (AMAT) down more than -2% after it said Q3 net sales would decline as the memory-chip slump weighs on its business.  Also, ON Semiconductor (ON) is down more than -3%, and Nvidia (NVDA) and Advanced Micro Devices (AMD) are down more than -2%.  In addition, KLA Corp (KLAC) and Lam Research (LRCX) are down more than -1%. 

Ulta Beauty (ULTA) is down more than -3% after Oppenheimer cut its price target on the stock to $575 from $600.

Across the markets…

June 10-year T-notes (ZNM23) today are down -15 ticks, and the 10-year T-note yield is up +6.1 bp at 3.707%.  Jun T-notes this morning fell to a 2-month low, and the 10-year T-note yield rose to a 2-month high of 3.719%.  Today’s rally in the S&P 500 to a 9-month high and optimism that the U.S. will raise its debt ceiling and avoid default has reduced the safe-haven demand for T-notes.  Also, rising inflation expectations are weighing on T-note prices after the 10-year breakeven inflation rate rose t a 3-week high today at 2.257%. 

The dollar index (DXY00) today is down +0.23%.  The dollar this morning is falling back as strength in stocks has reduced the liquidity demand for the dollar.  Also, hawkish comments today from ECB President Lagarde boosted the euro and weighed on the dollar. 

EUR/USD (^EURUSD) today is up by +0.21%.  The euro today rebounded from a 1-1/2 month low and is moderately higher.  Short covering in EUR/USD emerged after ECB President Lagarde said interest rates need to be "sustainably" high to curb inflation.   The euro today initially weakened after the German Apr PPI rose at the slowest pace in 2 years, a dovish factor for ECB policy.

ECB President Lagarde said interest rates need to be "sustainably" high to curb inflation, and the ECB needs to "buckle up and deliver" its 2% inflation target.

German Apr PPI eased to +4.1% y/y from +6.7% y/y in Mar, the slowest pace of increase in 2 years.

USD/JPY (^USDJPY) today is down by -0.09%.  The yen today is slightly higher as it garnered support on today’s Japanese inflation news that showed Japan's Apr national CPI ex-fresh food and energy rose at the fastest pace in 41 years.  Higher T-note yields today are limiting the upside in the yen, along with dovish comments from BOJ Governor Ueda, who said the BOJ would take its time when deciding on monetary policy adjustments.

Japan's Apr national CPI ex-fresh food and energy rose +4.1% y/y, the largest increase in 41 years.

The Japan Mar tertiary industry index unexpectedly fell -1.7% m/m, weaker than expectations of a +0.3% m/m increase and the biggest decline in 1-3/4 years.

BOJ Governor Ueda reassured that the BOJ will continue with easing when he said, "It is appropriate to take time to decide on adjustments to monetary easing toward a future exit."

June gold (GCM3) this morning is up +2.8 (+0.14%), and July silver (SIN23) is up +0.182 (+0.77%).  Precious metals prices this morning are moderately higher as a weaker dollar has sparked some short covering in metals.  Also, a jump in inflation expectations has boosted demand for gold as an inflation hedge after the 10-year breakeven inflation rate today rose to a 3-week high.  Gains in precious metals are limited due to higher global bond yields and hawkish comments from ECB President Lagarde, who said interest rates need to be "sustainably" high to curb inflation. Also, optimism that U.S. lawmakers will soon agree to raise the debt ceiling has curbed the safe-haven demand for precious metals.

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