Market Wraps
Watch For:
New Home Sales for April; S&P flash services and manufacturing purchasing manager indices for May
Today’s Top Headlines/Must Reads:
– Biden, McCarthy Hold ‘Productive’ Meeting but No Debt-Ceiling Deal Yet
– Debt-Ceiling Fight Sends Investors Hunting for New Havens
– Biden Can’t Win in Debt-Ceiling Fight
– Yield-Curve Pioneer Says This Inversion Warning Is Real
– A Housing Bust Comes for Thousands of Small-Time Investors
Opening Call:
Stock futures were lower on Tuesday as the debt-ceiling deadline continued to cast a pall on trading.
“The debt ceiling seems to be the only market driver,” SPI Asset Management said.
“If no agreement is reached, the U.S. could default on interest it owes on its debts, sending borrowing costs soaring and sending shockwaves through the global economy. The forecast incoming mild recession would turn into a storm and the U.S. financial credibility would be badly shaken,” Hargreaves Lansdown said.
Overseas stock indexes were mostly lower. In Europe, the Stoxx 600 index edged down 0.3%. In Hong Kong, the Hang Seng index fell 1.2% while Japan’s Nikkei 225 fell 0.4%.
Stocks to Watch
Guardant Health shares fell 7% premarket after saying it was raising $350 million through a stock offering, which would dilute existing shareholders.
Lifecore Biomedical said Monday that it entered into a $150 million new financing agreement with its customer Alcon. Shares of Lifecore rose 18% in after-hours trading.
Movella Holdings said Monday that the company’s chief financial officer recently purchased shares. Shares rose 26% in after-hours trading.
PacWest shares rose 9% before the bell, building on a 20% gain Monday. That came after the embattled bank said it would sell a $2.6 billion property-loan portfolio to Kennedy-Wilson Holdings.
Activist investor TCS Capital Management has built a stake in Yelp and is calling on it to explore options including a sale, The Wall Street Journal reported. Shares rose more than 10% premarket.
Forex:
The dollar edged higher as remarks from Federal Reserve officials Monday suggested not all policymakers think pausing interest-rate rises is possible in June, Commerzbank said.
“In this respect, the market is likely to hope for more insight from the Fed minutes, which will be published tomorrow.”
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The euro stayed weaker against the dollar after a key survey showed eurozone manufacturing activity contracted by more than forecast in May but services activity expanded more than expected.
The S&P’s eurozone manufacturing purchasing managers’ index fell to 44.6 in May from 45.8 in April, below the 46.0 reading expected by analysts in a WSJ survey.
The services PMI dropped to 55.9 in May from 56.2 in April but the reading was above the expected 55.7.
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Sterling edged lower after a key measure of manufacturing and services activity fell short of expectations.
The S&P/CIPS U.K. composite purchasing managers’ index fell to 53.9 in May from 54.9 in April as manufacturing activity contracted further and services activity grew at a slower pace. Analysts in a WSJ survey expected a reading of 54.1.
“Activity growth in private sector business softened last month to the lowest since March as subdued customer demand put a dampener on levels of new orders,” CIPS said.
Bonds:
Instead of focusing on the ultra short end of the yield curve, UBS Global Wealth Management said it sees opportunities in high-quality medium-to-long duration fixed income.
UBS GWM sees five-year Treasuries attractive at a yield of 3.69%, even as yields are down from their recent peak in early March, which was prior to the emergence of worries over the health of the banking system.
“We see the potential for capital gains in the event growth slows more abruptly than currently expected.”
Energy:
Oil prices flicked between small gains and losses in Europe as investors awaited fresh news on the U.S. debt ceiling standoff.
“Oil followed broader markets where sentiment remains weak as U.S. lawmakers try to find middle ground,” ANZ said.
Adding to this is economic concerns in the U.S. and China, the two largest consumers of oil in the world.”
Metals:
Base metals and gold prices continued to fall in early London trading as Western economic woes and slower-than-expected Chinese demand cut consumption.
BMI, a subsidiary of Fitch Solutions, has lowered its 2023 aluminum price forecast to an average of $2,500 a ton from $2,600 a ton, pressured by China weakness.
“Prices will likely remain under pressure in 2023, with no return to 2022 highs, as global demand remains weak and domestic supply increases in mainland China,” BMI said.
Today’s Top Headlines
Ford Stock Has an Uphill Climb
Ford Motor isn’t as undervalued by the stock market as Chief Executive Jim Farley seems to think.
The automaker charted an optimistic course through the transition to electric vehicles at a capital-markets day Monday. It expects its adjusted operating margin to rise to 10% by 2026 from 6.6% last year as it turns losses on its first-generation EVs to profit on a second generation while cutting fixed costs on conventional cars.
JPMorgan Makes One of the Biggest Bets Ever on Carbon Removal
The biggest U.S. bank is making one of the biggest bets ever to remove carbon from the atmosphere as a way to fight climate change.
JPMorgan Chase has agreed to invest more than $200 million to purchase credits from several companies in the nascent industry, company officials said. The money and JPMorgan’s endorsement are a boost to businesses that have removed only small amounts of carbon so far.
Hilton, Marriott Square Off in Extended-Stay Battle
The two biggest U.S. hotel companies are launching new extended-stay brands, a sign that the industry remains bullish on lodging that appeals to guests seeking longer booking periods as work and travel habits evolve.
Hilton and Marriott International are preparing to open hotels starting next year under their as-yet-unnamed new brands. Both companies will be competing for the same type of guests: customers looking to book affordable rooms for 20 nights or longer, executives for the companies said.
Activist Investor Calls on Yelp to Explore Sale
Activist investor TCS Capital Management has built a stake in Yelp and is calling on the service-recommendation site to explore strategic alternatives including a sale, according to people familiar with the matter.
TCS Capital owns more than 4% of the shares outstanding of Yelp’s common stock, making it one of the company’s five biggest shareholders, the people said. TCS Capital has been an investor in Yelp for most of the past five years, but the stake hasn’t been revealed publicly before.
Elon Musk to Join WSJ’s CEO Council Summit to Talk Tesla, Twitter, SpaceX and More
Elon Musk is set to face questions about his corporate juggling act as he joins The Wall Street Journal’s CEO Council Summit.
The billionaire has been trying to turn around Twitter, stoke demand for Teslas, demonstrate that SpaceX can get its Starship rocket to orbit after an explosion during the vehicle’s inaugural test flight, and steer public conversation about artificial intelligence.
Vodafone and Nestlé Created Panels to Avoid ‘Greenwashing’ Allegations
Vodafone Group and Nestlé have set up panels of experts to double check environmental claims before they appear on products and marketing, a move by the multinationals to avoid allegations of so-called greenwashing.
The U.S. and the European Union are looking to weed out greenwashing, or the practice of companies overstating their efforts to help the planet. The U.S. Federal Trade Commission is updating its environmental marketing guidelines and the EU has proposed that businesses need to offer scientific evidence. Corporate claims related to greenhouse-gas emissions, such as “carbon neutral,” “climate positive” and “net zero,” are especially under the microscope.
Adani Companies’ Shares Rise for Second Straight Day
Shares of companies in the Adani group rose sharply for a second day on Tuesday, amid buoyant investor sentiment, after a panel appointed by India’s Supreme Court found no evidence of price manipulation as alleged by a short seller earlier this year.
Adani Enterprises’ shares, the group’s flagship company, jumped 13% to INR2,628.00 in the morning session. Shares of Adani Ports & Special Economic Zone rose by 7.7% and Adani Wilmar advanced by 8.4%. Adani Power, Adani Green Energy and Adani Transmission each gained 5.0%.
Biden, McCarthy Hold ‘Productive’ Meeting but No Debt-Ceiling Deal Yet
WASHINGTON-House Speaker Kevin McCarthy and President Biden failed to reach a deal to raise the debt ceiling following a high-stakes meeting at the White House but planned to press ahead with talks, as the U.S. nears a deadline to prevent a first-ever default.
Biden called the meeting productive and said he “reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement.”
A Housing Bust Comes for Thousands of Small-Time Investors
Few investors rode the pandemic-era housing boom as high as Jay Gajavelli. Fewer still have fallen as far.
Before Gajavelli found his real-estate career, the 61-year-old immigrant from India was just another information-technology worker, putting in 60-hour weeks for a middling job in Dallas. Last year, Gajavelli’s company owned more than $500 million worth of Sunbelt apartment buildings with more than 7,000 units, and was one of Houston’s biggest landlords.
Debt-Ceiling Fight Sends Investors Hunting for New Havens
Traders worried about a potential U.S. default are swapping their go-to safe haven for the bonds of America’s top-rated companies.
Just days or weeks before the government faces a possible funding shortfall, investors are shunning U.S. Treasury bills that will mature over the next several months, while paying a premium to buy debt issued by Microsoft and Johnson & Johnson, two of the highest-rated U.S. companies.
Pro Take: Yield-Curve Pioneer Says This Inversion Warning Is Real
The Duke University finance professor who developed a tool that has reliably predicted economic contractions for decades said in January that his indicator might be sending a false recession warning.
He’s not saying that now.
Online Retailers Tighten Return Policies to Boost Profits
Returns are one of the biggest profit drains for online retailers. Fixing that has become a priority as inflation continues to crimp shoppers’ spending on everything from clothes to home décor.
Amazon gives a heads-up to shoppers about items that have high return rates. Online retailer Dress the Population offers discounts to people who agree not to return their purchases. Retailers with large numbers of physical stores such as Zara and H&M are also making adjustments like charging shoppers for sending returns by mail.
Eurozone Economy’s Pace of Growth Eased in May, PMIs Suggest
Business activity in the eurozone moderated in May, still showing output grew for a fifth straight month, though with new business inflows nearly stalling and a struggling manufacturing sector, the outlook has become bleaker, data from a purchasing managers survey showed Tuesday.
The HCOB Flash Eurozone Composite PMI Output Index-which gauges activity in the manufacturing and services sectors-fell to a three-month low of 53.3 in May, from a downwardly revised 54.1 in April.
Biden Can’t Win in Debt-Ceiling Fight
President Joe Biden has no good options in Washington’s fight over raising the debt limit.
The U.S. could be unable to pay all of its bills as soon as June 1 if Biden and congressional Republicans can’t reach a deal-and every path forward carries political risks for the president.
Questions About Trump, DeSantis and Biden Fuel Growth of 2024 GOP Field
The 2024 Republican presidential-nomination race is expected to crack the half-dozen mark for higher-profile entrants this week and several more are considering bids, a sign that prospective candidates don’t think Donald Trump has the contest locked up and view Florida Gov. Ron DeSantis as a flawed lead challenger to the former president.
Republicans also see President Biden’s weak polling as an enticement.
New Chinese Ambassador Departs for the U.S. Under a Cloud of Uncertainty
SINGAPORE-China’s new ambassador to the U.S. is set to arrive in Washington to take up his post on Tuesday, a potential signal of Beijing’s willingness to improve communications despite a recent cascade of diplomatic dust-ups.
Xie Feng, a veteran diplomat with extensive experience in managing U.S.-China ties, left Shanghai for the U.S. around noon local time on Tuesday, according to people familiar with the matter. He arrives at an uncertain moment in relations between Beijing and Washington, as contradictory messages emanate from the two capitals.
China Offers Tough Reply to Biden’s Suggestion of Thaw With U.S.
Austin Ramzy
HONG KONG-Beijing responded to the Group of Seven leaders’ firm language toward China by pouring cold water Monday on President Biden’s suggestion that a thaw in U.S.-China relations was imminent.