Five things you need to know before the market opens on Tuesday May 16:
1. — Stock Futures Slip Lower With Debt Ceiling Talks In Focus
U.S. equity futures edged lower Tuesday, while the dollar gave back gains against its global peers and Treasury yields steadied, as investors remained cautious ahead of key debt ceiling talks later today in Washington.
Stocks have remained mired in one of the tightest trading ranges of the past two years this month, with the S&P 500 still just 40 points from the year-to-date high it reached in early February, but still unable to break from its narrow trading band amid concern that the market could be upended by a failure to end the debt ceiling impasse.
House Speaker Kevin McCarthy added to that concern last night when he characterized staff-level talks, expected to continue with President Joe Biden later today at the White House, as “nowhere near reaching a conclusion”, even as Treasury Secretary Janet Yellen repeated her warning that the U.S. could face default risk by the end of this month.
“We still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” Yellen said in a letter to McCarthy published late last night.
Traders are now pricing 1-month Treasury bills at 5.85%, some 60 basis points north of 6-month bills, to reflect that risk, although the broader Treasury complex remains sanguine.
Benchmark 2-year notes were pegged at 3.991% in overnight trading while 10-year notes eased to 3.479% and the U.S. dollar index, which tracks the greenback against a basket of its global peers, slipped 0.12%to 102.260.
Growth concerns were also in focus following yesterday’s disappointing reading of the New York Federal Reserve‘s Empire State manufacturing activity index for the month of May, which slumped 40 points to -31.8, the second-lowest reading of the post-Covid cycle. The Philadelphia Fed wil publish its regional activity index on Thursday.
Stocks look set for another range-bound session ahead of April retail sales data at 8:30 am Eastern time, with futures contracts tied to the S&P 500 indicating a modest 2 point opening bell decline and those linked to the Dow Jones Industrial Average priced for a 26 point dip. The tech-focused Nasdaq was marked 10 points lower.
In Europe, the region-wide Stoxx 600 was marked 0.03% lower in early Frankfurt trading following data indicating a modest first quarter GDP growth rate of 0.1% for the Eurozone economy, a tally that was largely in-line with analysts’ forecasts.
Overnight in Asia, the region-side MSCI ex-Japan index was marked 0.19% higher into the close of trading, despite disappointing data from China suggesting the world’s second-largest economy is finding its post-Covid recovery more challenging than anticipated.
In Japan, the Topix index, the country’s broadest measure of share prices, rose 0.58% to 2,127.18 points, the highest since August of 1990, as stocks continue to extend their impressive year-to-date gains. The Nikkei 225 ended 0.73% higher at 29,842.99 points.
2. — Retail Sales On Deck After Consumers Powered Q1 GDP Growth
The Commerce Department will publish its regular reading of April retail sales Tuesday, with analysts looking for a modest rebound in spending from March levels thanks to higher gasoline sales and a leap in used car prices.
Economists expect a headline gain of around 0.7%, snapping two consecutive months of declines, as April auto sales — which came in at 15.9 million, near to their January peak — drive the overall gains. The so-called control group reading, which strips out energy, auto and other seasonally volatile items, is forecast to grow by around 0.3%.
Elevated levels of spending will prove critical in the U.S.’s effort to avoid slipping into recession. The U.S. economy expanded at a 1.1% annualized pace over the three months ending in March, according the Commerce Department’s first estimate of GDP growth, down from the 2.6% advance over the final three months of last year and notably shy of analysts’ 1.9% forecast.
“The prop to overall spending from savings accumulated during Covid — the main buffer against the Fed’s aggressive hikes over the past year — is fading fast,” said Ian Shepherdson of Pantheon Macroeconomics. “The monthly pace of savings rundown already has slowed, and we can’t rule out a complete cessation of savings rundown even before the stock reaches zero.”
3. — Home Depot Earnings In Focus as Retail Week Heats Up
Home Depot (HD) – Get Free Report shares edged lower in pre-market trading ahead of the home retailer first quarter earnings prior to the opening bell.
Home Depot, which kicks-off a three-day stretch of March quarter earnings for the country’s biggest retailers, is expected to post a bottom line of $3.80 per share, down 7.6% from the same period last year. Revenues are likely to be largely flat to last year, at $38.3 billion,
Earlier this year, Home Depot reiterated its forecast for a ‘mid-single digit’ decline in 2023 earnings, with comparable sales expected to be flat to 2022 levels.
Home Depot shares were marked 0.05% lower in pre-market trading, indicating an opening bell price of $288.38 each.
4. — Warren Buffett’s Berkshire Hathaway Takes New Position in Capital One
Billionaire investor Warren Buffett’s Berkshire Hathaway investment vehicle boosted its stake in Apple (AAPL) – Get Free Report and Bank of America (BAC) – Get Free Report over the first quarter while adding a new position in Capital One Financial (COF) – Get Free Report.
In Berkshire’s regular 13-F filings with the U.S. Securities & Exchange Commission, published late Monday, the group revealed it had added around 20.4 million shares to its Apple holding, taking it to around xx%. It also added 22.75 million shares of Bank of America and built a 9.92 million share stake in Capital One.
Earlier this month, Buffett described Apple as “different than the other businesses we own” but also “a better business” at his annual shareholders meeting in Omaha, Nebraska.
Berkshire itself posted a 13% jump in operating profit for the first quarter, Buffett’s preferred metric, which came it at $8.07 billion.
Capital One shares were marked 7% higher in pre-market trading to indicate an opening bell price of $95.30 each.
5. — Horizon Therapeutics Plunges On Report FTC Will Sue To Block Amgen Takeover
Horizon Therapeutics (HZNP) – Get Free Report shares plunged lower in pre-market trading following reports that the U.S. Federal Trade Commission is set to challenge the developmental drugmaker’s $27.8 billion takeover by Amgen (AMGN) – Get Free Report.
Reuters reported late Monday that the FTC will file a lawsuit to block the deal as early as today, following criticism from senior U.S. lawmakers, including Senator Elizabeth Warren, over its impact on pharmaceutical prices.
Amgen beat out interest from Johnson & Johnson JNJ, as well as France’s Sanofi, when it offered pay $116.50 per share for Dublin, Ireland-based Horizon. Horizon’s best-selling drug, Tepezza, which is used to treat thyroid eye disease, is expected to generate $4 billion in annual sales over the coming years. The group’s other major drug, Krystexxa, is used to treat patients with gout.
Horizon Therapeutics shares were marked 18% lower in pre-market trading to indicate an opening bell price of $92.10 each.