Investors grew nervous Tuesday bringing out the bears as another day passed with no progress on the debt ceiling negotiations with the June I deadline looming. The DIA suffered a little technical damage by failing its 50-day morning average and though the SPY, QQQ and IWM experienced some selling no technical damage was created. Today we have a light morning economic calendar with the release of the FOMC minutes this afternoon. We have a few more earnings events to keep traders guessing with the possible market-moving NVDA report coming after the bell.
As we slept Asian markets declined across the board led by Hong Kong down 1.62% as another wave of pandemic infections breaks out in China. European markets are also decidedly bearish this morning despite the decline in U.K. inflation to 8.7%. U.S. futures suggest a bearish open as debt negotiation uncertainty moves ever closer to the deadline with little to no progress. Plan for possible big moves as the news and rhetoric spew from Washington.
Notable reports for Wednesday include ANF, AEO, ADI, APPS, CRMT, DY, GES, KSS, MOD, NVDA, WOOF, PLAB, PLCE, PATH, SNOW, and SPLK.
News & Technicals’
The U.K. economy has shown resilience in the face of Brexit uncertainty, but inflation has been a persistent challenge. In April, however, inflation fell sharply to 8.7% year-on-year, the lowest level since December 2021. This was mainly due to lower prices for clothing, footwear, and household goods, as well as a base effect from the spike in energy prices a year ago. Some analysts believe that inflation will continue to decline in the coming months, as weak consumer demand and tighter monetary policy take their toll. The Bank of England, which has raised interest rates four times since November 2022, may have to revise its inflation forecast downward in its next report.
The U.S. government is facing a looming deadline to raise the debt ceiling and avoid a default that could have consequences for the global economy. Treasury Secretary Janet Yellen warned that the Treasury Department will run out of cash by June 1 unless Congress acts soon. However, House Republicans questioned the urgency of her warning and accused her of using scare tactics to pressure them into a deal. President Joe Biden and House Speaker Kevin McCarthy met on Monday to try to break the impasse, but they still have several sticking points to resolve. These include Republican demands for changes in energy policy, welfare programs, and pandemic relief spending.
The U.S. stock market closed lower on Tuesday, as investors grew nervous about the possibility that debt negotiations could fail to reach a deal by June 1. President Biden and House Speaker McCarthy met on Monday to try to reach a deal, but they did not announce any breakthrough. The uncertainty weighed on market sentiment, especially in Europe, where luxury goods makers also suffered from China’s crackdown on excessive consumption. The only bright spot was the energy sector, which benefited from higher oil prices. Bond yields and the dollar also rose slightly, reflecting the risk-off mood. Today traders will have to deal with Mortgage Apps, Petroleum Status, Fed speak, bond auctions, and the FOMC minutes.