Equity markets lower as deadlock debt ceiling talks push up short-term yields

The apparent lack of progress on the debt-ceiling negotiations weighed on equities Tuesday, with the S&P 500 Index dropping to its lowest level in a week.  While negotiations continued on Tuesday, there have been no signs of progress as the 1^st June deadline approaches with the risk of default.  European equities also declined yesterday, with the Euro Stoxx 50 index down 1%, driven by losses in the luxury goods sector due to concerns over weakening demand in the United States.  

Summary for 24.05.2023 

• Most Asian equity markets retreated on Wednesday, tracking losses in US shares as a deal to raise the debt ceiling remained out of reach, while fears of worsening Sino-US tensions also dampened sentiment towards the region.  The Hang Seng led the retreat amid losses in Chinese technology shares such as Alibaba, Baidu, and JD.com.  The S&P/ASX 200, Nikkei 225, and Shanghai Composite also declined. 
• European shares are on track for losses while US equity futures remained steady on Wednesday as investors continued to monitor the debt ceiling negotiations.  
• Oil prices rose in Asia trade this morning, climbing for the third straight session to the highest levels in three weeks, as a warning from the Saudi energy minister stoked fears of further OPEC+ production cuts.  Saudi Arabia’s Prince Abdulaziz bin Salman told speculators to “watch out,” in what analysts took as a signal that OPEC+ could consider further output cuts at a meeting on 4^th June.  Meanwhile, industry data showed that US crude inventories declined by about 6.8 million barrels last week, defying forecasts for a 0.525 million increase. 

• The Reserve Bank of New Zealand lifted the official cash rate during its May meeting by 25bps to 5.5%, its 12^th straight rate hike, as an inflation rate of 6.7% in Q1 remained too high, with many measures of inflation expectations staying elevated.  The RBNZ said it now sees borrowing costs peaking at the current level, with cuts beginning in Q3 of 2024.  In noted a GDP contraction of 0.6% in Q4 of 2022 was unexpected while a mild recession is projected for Q2 and Q3 of 2023. 
• The S&P Global US Composite PMI rose to 54.5 in May, up from 53.4 the month before, a preliminary estimate showed.  The latest reading signaled the fastest pace of expansion in the country’s private sector since April 2022, as service sector growth accelerated to a 13-month high helped by stronger demand conditions.  Meanwhile, manufacturing production rose only marginally. 
• Apple Inc. announced a new multibillion-dollar deal with Broadcom to develop 5G radio frequency components in the US.  The investment is part of an initiative Apple announced in 2021 to invest $430 billion in the US economy over five years.  Broadcom shares were up 1.2%, while Apple shares were down about 1.5%. 
• Lowe’s reported adjusted earnings of $3.67 per share, about 20 cents above expectations, but also said same-store sales dropped 4.3% and cut its full-year sales estimate due to “softer-than-expected consumer demand for discretionary purchases.”  Its shares nevertheless rose 1.7%.