Markets Today: Stocks Climb on a Tentative Deal to Raise the Debt Ceiling

Morning Markets

June E-Mini S&P 500 futures (ESM23) this morning are up +0.61% at a 9-1/2 month high, and June Nasdaq 100 E-Mini futures (NQM23) are up +1.46% at a 13-1/2 month high.

U.S. stock index futures this morning are moderately higher after a tentative agreement was reached over the long holiday weekend to raise the U.S. debt ceiling. White House negotiators and Republican leaders led by House Speaker McCarthy agreed to a tentative deal to suspend the debt ceiling until January 2025 and cap federal spending for the next two years.  The House is expected to vote on the bill Wednesday before it goes to the Senate for a vote.

Global bond yields are lower and are supportive of stocks.  The 10-year T-note yield is down -7.2 bp at 3.727%. The 10-year German bund yield fell to a 1-1/2 week low of 2.362% and is down -5.6 bp at 2.376%, and the UK 10-year gilt yield is down -2.8 bp at 4.306%.

On the bullish side for stocks, Nvidia is up more than +3% in pre-market trading after it unveiled a new batch of products and services tied to artificial intelligence (AI).  Also, Tesla is up more than +3% after CEO Musk said the company opposes “decoupling” and is willing to expand business in China.  In addition, Confluent is up more than +4% in pre-market trading after Needham & Co initiated coverage of the stock with a buy recommendation.

On the bearish side, energy stocks and energy service providers are falling in pre-market trading, with the price of WTI crude down more than -1%.  Also, Universal Music Group is down more than -1% after CNN reported talks were “well underway” for the company to acquire the music catalog of the band Queen from Disney Music Group.

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.21%.  China’s Shanghai Composite closed up +0.09%, and Japan’s Nikkei Stock Index closed up +0.30%. 

The Euro Stoxx 50 index today is moderately higher. Artificial intelligence-related stocks are climbing today after Nvidia unveiled a new batch of products and services tied to AI.  An easing of inflation pressures in the Eurozone is also supportive for equities after Spain’s May CPI rose at the slowest pace in 1-3/4 years.  The slowdown in price pressures sparked a rally in European government bonds that knocked the 10-year German bund yield down to a 1-1/2 week low.  Gains in the overall market are limited after the Eurozone May economic confidence index fell more than expected to a 6-month low.  Also, Nestle SA fell nearly -1% after it announced that CFO Francois-Xavier Roger was stepping down.  

The Eurozone May economic confidence index fell -2.5 to a 6-month low of 96.5, weaker than expectations of 98.8.

The Eurozone Apr M3 money supply rose +1.9% y/y, weaker than expectations of +2.0% y/y and the smallest increase in 8-3/4 years. 

Spain’s May CPI (EU harmonized) eased to +2.9% y/y from 3.8% y/y in Apr, slower than expectations of +3.3% y/y and the smallest increase in 1-3/4 years.

China’s Shanghai Composite Stock Index today closed slightly higher.  China’s state-owned enterprises (SOEs) rallied today after a report from Morgan Stanley said that SOE reforms can structurally boost the market’s investability, return on equity, and valuations.  Chinese education stocks also moved higher today after President Xi Jinping called on top officials to boost a “high quality” education system that strengthens China’s development.  In addition, shares of companies related to AI and medical equipment makers rose after a chief engineer at China’s MITT said that brain-computer interface technology should be a key area to foster.  Gains in the overall market were muted as sentiment for Chinese stocks remains depressed due to headwinds from a weak economic recovery and heightened geopolitical tensions with the U.S. 

Japan’s Nikkei Stock Index today closed moderately higher and held below Monday’s 32-year high.  Japanese stocks garnered support on today’s economic news that showed Japan’s jobless rate in April fell more than expected.  Exporter stocks also rallied today after the yen fell to a 6-1/4 month low against the dollar, which boosts the earnings prospects of exporters. However, the yen recovered its losses and moved higher after an unscheduled meeting today between Japan’s Ministry of Finance, the BOJ, and the Financial Services Agency sparked short covering in the yen.  Also, Japan’s top currency official, Kanda, said the government would take action if needed if the yen continues to decline.  The unscheduled meeting came after the yen softened beyond 140 per dollar.

The Japan Apr jobless rate fell -0.2 to 2.6%, showing a stronger labor market than expectations of 2.7%.

Pre-Market U.S. Stock Movers

Nvidia (NVDA) is up more than +3% in pre-market trading after it unveiled a new batch of products and services tied to artificial intelligence (AI).  Other mega-cap stocks involved with AI also rose, with Microsoft (MSFT), Meta Platforms (META), and Advanced Micro Devices (AMD) up more than +1%.

Tesla (TSLA) climbed more than +3% in pre-market trading after CEO Musk said the company opposes “decoupling” and is willing to expand business in China.

Confluent (CFLT) jumped more than +4% in pre-market trading after Needham & Co initiated coverage of the stock with a buy recommendation and a price target of $35. 

SoFi Technologies (SOFI) rallied more than +2% in pre-market trading after BTIG said the debt-limit agreement, which included the resumption of student-loan payments, was positive for the company.

Acelyrin (SLRN) climbed more than +5% in pre-market trading after Piper Sandler initiated coverage of the stock with an overweight rating and a price target of $68, saying the company is a “pioneer in the inflammatory disease space.” 

Equitrans (ETRN) surged more than +20% in pre-market trading after RBC Capital Markets upgraded the stock to outperform from sector perform with a price target of $10. 

Universal Music Group (UMG) slid more than -1% in pre-market trading after CNN reported talks were “well underway” for the company to acquire the music catalog of the band Queen from Disney Music Group.

Energy stocks and energy service providers are falling in pre-market trading, with the price of WTI crude down more than -1%.  ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Marathon Oil (MRO), Occidental Petroleum (OXY), Schlumberger (SLB), and Valero Energy (VLO) are down -1% or more.   

Today’s U.S. Earnings Reports (5/30/2023)

Ambarella Inc (AMBA), Box Inc (BOX), Golar LNG Ltd (GLNG), Hewlett Packard Enterprise Co (HPE), HP Inc (HPQ), Skyline Champion Corp (SKY), Sportsman's Warehouse Holdings (SPWH), U-Haul Holding Co (UHAL).

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