Fed less certain on the need for further rate hikes

The ongoing debt-ceiling impasse weighed on US shares for a second day Wednesday, leaving the Dow Jones Industrial Average near a two-month low and the S&P 500 Index at its lowest level in a week.  Negotiators representing House Republicans and the White House met again on Wednesday, though no progress has been reported.  The stalemate is making investors increasingly edgy as the June deadline set by Treasury Secretary Janet Yellen approaches.  One measure of the market’s unease has been the rise in short-term Treasury yields, which are at their highest levels in more than two months.  Meantime, European equity markets suffered their biggest sell-off since mid-March yesterday, with the Euro Stoxx 50 index retreating 1.8% to reach an eight-week low. 

Summary for 25.05.2023 

• Asian equity markets mostly fell on Thursday as the ongoing debt ceiling negotiations in Washington weighed on market sentiment.  Meanwhile, semiconductor and Al-related firms in Asia gained as Nvidia issued stronger-than-expected revenue guidance driven by Al chip demand.  The S&P/ASX 200, Hang Seng, and Shanghai Composite declined, while the Nikkei 225 advanced. 
• European shares are on track for tiny gains this morning while Nasdaq 100 and S&P 500 equity futures were firmly in positive territory, as investors weigh positive tech earnings and concerns over US debt-ceiling talks.   
• Oil prices were little changed on Thursday as uncertainty over whether the United States will avoid a debt default weighed against the prospect of further OPEC+ production cuts.   Prices gained nearly 4% over the past three sessions amid tightening supplies and an improving demand outlook. 

• Fed officials expressed uncertainty about how much more policy tightening may be appropriate in the future and many focused on the need to retain optionality, minutes from the FOMC meeting in May showed.  Several participants noted that if the economy evolved in line with their current outlooks, then further policy firming may be necessary.  However, other participants commented that additional policy firming would likely be warranted if the progess in returning inflation to 2% would continue to be unacceptably slow. 
• The tension around the US debt-limit negotiations ratcheted up after Fitch Ratings warned the nation’s AAA rating was under threat from a political standoff that’s preventing a deal.    Fitch may downgrade its assessment to reflect the increased partisanship that is hindering a resolution despite the fast-approaching so-called X date, it said in a statement, referring to the point at which Washington runs out of cash.  Some progress had been made but several issues remained unresolved, House Speaker Kevin McCarthy said Thursday.  
• The inflation rate in the UK fell to 8.7% in April, the lowest since March 2022, due to a sharp slowdown in electricity and gas prices.  Still, it exceeded market expectations of 8.2% and remained well above the BOE’s target of 2%.  The core rate, jumped to 6.8%, the highest since 1982 and above forecasts of 6.2%. 
• Nvidia Corp on Wednesday forecast second-quarter revenue above Wall Street estimates, as the growing popularity of artificial intelligence drives demand for its chips used in powering the technology at big data centers.  The company forecast current-quarter revenue of $11 billion, plus or minus 2%.  Analysts had expected revenue to be $7.15 billion on average.  The company’s shares gained as much as 29% in late New York trading, while its rival Advanced Micro Devices jumped 10%. 
• Abercombie & Fitch reported an unexpected profit of 39 cents per share for the previous quarter, besting analyst expectations of a loss.  The retailer also offered a strong forecast for the current quarter and full year.  Its shares were up more than 30% yesterday. 

• Kohl’s also reported an unexpected profit in its previous quarter, with earnings of 13 cents per share, compared to forecasts for a loss of 42 cents.  Net sales fell to $3.36 billion from $3.47 billion a year earlier.  Kohl’s results contrasted with disappointing results from other US retailers in recent weeks.  Its shares were up more than 7%.