Stock Index Futures Move Lower as U.S. Debt Ceiling Vote Looms, China Data Disappoints

June S&P 500 futures (ESM23) are down -0.14%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.18% this morning as market participants digested weak Chinese manufacturing data while nervously awaiting the final vote on the U.S. debt ceiling deal.

The debt ceiling deal struck by U.S. President Joe Biden and House Speaker Kevin McCarthy is heading toward a vote later today in the House of Representatives after clearing a key procedural hurdle. Congressmen have until Monday next week to approve a deal between Republicans and Democrats to temporarily suspend the U.S. debt ceiling and cap federal spending to prevent a U.S. default.

In Tuesday’s trading session, the tech-heavy Nasdaq 100 outperformed major benchmarks, helped in part by an about +3% rise in shares of NVIDIA Corporation (NVDA) after the company unveiled several AI-related products and services. Also, Paramount (PARA) surged over +6% after Wolfe Research upgraded the stock to Peer Perform from Underperform, helping the benchmark S&P 500 close essentially flat. At the same time, energy stocks were the biggest drag on the market as the price of WTI crude plunged over -4% to a 2-week low on worries about the U.S. debt ceiling deal and OPEC+ infighting.

Economic data on Tuesday showed U.S. May CB Consumer Confidence came in at 102.3, stronger than expectations of 99.0. Also, U.S. S&P/CS HPI Composite - 20 n.s.a. stood at -1.1% y/y in March, compared to the expected figure of -1.6% y/y.

“The confidence data suggest that the risks are tilting toward another Fed rate hike in June, and at a minimum, a continued push forward with hawkish policy guidance,” Jefferies said in a note.

Richmond Fed President Thomas Barkin said Tuesday that U.S. interest rates have entered “restrictive territory.” At the same time, Barkin stated that he hasn’t “backed off” from his rate forecast, which he said is “among the higher ones” within the central bank.

Meanwhile, U.S. rate futures have priced in a 68.2% probability of a 25 basis point rate increase and a 31.8% chance of no hike at the June meeting.

On the earnings front, big-name companies like Salesforce Inc (CRM), Crowdstrike Holdings (CRWD), NetApp (NTAP), Okta (OKTA), and Chewy (CHWY) are set to report their quarterly figures today.

Today, all eyes are focused on the U.S. JOLTs Job Openings data in a couple of hours. Economists, on average, forecast that April JOLTs Job Openings will stand at 9.775M, compared to the previous value of 9.590M.

Also, investors are likely to focus on the U.S. Chicago PMI, which was at 48.6 in April. Economists foresee the new figure to be 47.0.

In addition, market participants will likely focus on speeches from Philadelphia Fed President Patrick Harker, Boston Fed President Susan Collins, Governor Michelle Bowman, and Governor Philip Jefferson for further clues on the outlook for rates.

In the bond markets, United States 10-Year rates are at 3.662%, down -1.05%.

The Euro Stoxx 50 futures are down -0.42% this morning as investors weighed disappointing economic data from China while remaining cautious ahead of a vote to raise the U.S. debt ceiling. Losses in luxury stocks are leading the overall market lower, with Lvmh (MC.FP) falling over -1% and Kering (KER.FP) dropping more than -2%. Meanwhile, data on Wednesday showed that French inflation eased more than expected in May, while Italy also saw easing price pressures this month. In other news, Heineken NV (HEIA.A.DX) slid about -2% after Mexican Coca-Cola bottler Femsa launched a sale of about 3.3 billion euros of its Heineken Group shares.

France’s Consumer Spending, France’s CPI (preliminary), France’s GDP, Germany’s Unemployment Change, Germany’s Unemployment Rate, Italy’s GDP, and Italy’s CPI (preliminary) data were released today.

The French April Consumer Spending stood at -1.0% m/m, weaker than expectations of +0.3% m/m.

The French May CPI came in at -0.1% m/m and +5.1% y/y, weaker than expectations of +0.4% m/m and +5.7% y/y.

The French GDP has been reported at +0.2% q/q and +0.8% y/y in the first quarter, in line with expectations.

The German May Unemployment Change stood at 9K, stronger than expectations of 14K.

The German May Unemployment Rate was at 5.6%, in line with expectations.

The Italian GDP came in at +0.6% q/q and +1.9% y/y in the first quarter, stronger than expectations of +0.5% q/q and +1.8% y/y. 

The Italian May CPI has been reported at +0.3% m/m and +7.6% y/y, compared to expectations of -0.2% m/m and +9.2% y/y.

Asian stock markets today closed in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.61%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.41%. 

China’s Shanghai Composite today closed lower after disappointing factory data stoked worries about the country’s slow post-pandemic recovery. The National Bureau of Statistics said Wednesday that China’s factory activity fell to a 5-month low in May, contracting even faster than expected. Also, service sector activity expanded at the slowest pace in four months in May. The readings hurt the offshore yuan, which extended its recent decline, slumping to the weakest level versus the dollar in six months. Meanwhile, lingering worries over U.S.-China tensions continued to weigh on sentiment after China rejected a U.S. request for a meeting between defense ministers. Hong Kong-listed tech stocks suffered a sell-off on Wednesday, with Alibaba Group Holding Ltd falling over -1% and Bilibili Inc plunging over -4%.

“The PMI data reveal that China may be heading to a K-shaped recovery. The sluggish domestic demand could weigh on China's sustainable growth if there are no efficient and effective policy moves to engineer a broad-based recovery,” said Bruce Pang, a chief economist at Jones Lang LaSalle.

The Chinese May Manufacturing PMI stood at 48.8, weaker than expectations of 51.4 

The Chinese May Non-Manufacturing PMI came in at 54.5, weaker than expectations of 54.9.   

Japan’s Nikkei 225 Stock Index closed lower today, snapping a four-day winning streak as investors locked in profits, while the stronger yen also weighed on export-oriented stocks. Data on Wednesday showed the country’s industrial production unexpectedly contracted in April, while retail sales grew less than expected. Meanwhile, Toyota subsidiary Hino Motors Ltd. surged over +12% and was the top percentage gainer on the Nikkei after Daimler Truck Holding AG and Toyota Motor reached a preliminary deal to combine their truck units in Japan. Chip stocks, however, retreated on Wednesday, with Advantest falling -1% and Tokyo Electron dropping -2%. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 1.48% to 19.91.

The Japanese April Industrial Production stood at -0.4% m/m, weaker than expectations of +0.5% m/m.

The Japanese April Retail Sales came in at +5.0% y/y, weaker than expectations of +5.8% y/y.

The Japanese May Household Confidence was at 36.0, weaker than expectations of 36.1.

Pre-Market U.S. Stock Movers

LL Flooring Holdings Inc (LL) climbed over +24% in pre-market trading after confirming receipt of an unsolicited, non-binding offer from Cabinets To Go, a subsidiary of F9 Brands, to acquire all of the outstanding shares of LL Flooring for $5.76 per share in cash.

Ambarella Inc (AMBA) plunged more than -17% in pre-market trading after the company reported slightly better-than-expected Q1 results but issued below-consensus Q2 revenue guidance.

Hewlett Packard Enterprise Co (HPE) slid over -7% in pre-market trading after the IT and cloud services giant reported weaker-than-expected Q2 revenue and lowered its full-year revenue guidance.

HP Inc (HPQ) dropped about -5% in pre-market trading after the PC and printer giant reported mixed Q2 results.

Box Inc (BOX) gained over +2% in pre-market trading after the company reported upbeat Q1 results and raised its FY24 adjusted EPS guidance.

Xylem Inc (XYL) rose more than +1% in pre-market trading after Baird upgraded the stock to Outperform from Neutral.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Wednesday - May 31st

Salesforce Inc (CRM), Crowdstrike Holdings (CRWD), Veeva Systems A (VEEV), NetApp (NTAP), Okta (OKTA), Chewy (CHWY), Donaldson (DCI), CAE Inc. (CAE), Descartes Systems (DSGX), Advance Auto Parts (AAP), PVH (PVH), Capri Holdings (CPRI), C3 Ai (AI), Ncino (NCNO), Nordstrom (JWN), Credo Technology Holding (CRDO), Chindata (CD), Ehang (EH), Hovnanian Enterprises (HOV), NGL Energy Partners LP (NGL), Emeren DRC (SOL).

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