Last night, the House passed the debt ceiling deal in a 314-117 vote. That bill will now head to the Senate for a vote that is expected to take place this weekend. Some senators have expressed their disapproval of the bill, yet the bill is ultimately expected to pass in the Senate and head to the President Biden for signing before the June 5 X-date.
That’s all good news certainly in that a debt default should be avoided, yet the behavior of the equity futures market is the equivalent of one hand clapping. We suspect that is because (a) last Friday’s rally captured the relief of a debt ceiling deal getting done in time (b) the market’s supposition all along was that a deal would get done, albeit with some eleventh-hour drama and (c) there is a narrative at work that the market could now run into a wall of liquidity constraint as the Treasury Department replenishes its general account.
Currently, the S&P 500 futures are down one point and are trading in-line with fair value, the Nasdaq 100 futures are down eight points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are down 111 points and are trading 0.3% below fair value.
Like any other day, though, there is more going on than just one thing to influence the behavior of the futures market.
Today also features some weak price action in a gaggle of growth stocks and certain retailers following their earnings reports and guidance that is acting as a headwind. Dow component Salesforce (CRM), C3.ai (AI), CrowdStrike (CRWD), Okta (OKTA), Macy’s (M), Victoria’s Secret (VSCO), and Dollar General (DG) are among the stocks seeing sizable declines after their earnings reports.
There is also some economic data in play that is keeping market participants guessing about the state of things and what it might mean for monetary policy decisions.
To that end, China’s Caixin manufacturing PMI for May jumped back into expansion territory with a 50.9 reading (prior 49.5) and the eurozone’s CPI moderated to 6.1% year-over-year in May from 7.0% in April while core CPI dropped to 5.3% year-over-year from 5.6%.
Here in the U.S., the ADP Employment Change Report for May showed an estimated 278,000 jobs were added to private-sector payrolls (Briefing.com consensus 160,000) following a downwardly revised 291,000 (from 296,00) in April. That growth featured 110,000 goods-producing jobs and 168,000 service-providing jobs with leisure/hospitality positions (+208,000) leading the way.
The key takeaway from this report is that job growth is still strong, but that pay growth is slowing. For job stayers, the pain gain in May was 6.5% versus 6.7% in April.
The weekly initial jobless and continuing claims report corroborated the ongoing strength in the labor market. Initial claims for the week ending May 27 increased just 2,000 to 232,000 (Briefing.com consensus 233,000) while continuing jobless claims increased by 6,000 to 1.795 million.
The key takeaway from the report is that businesses overall remain reluctant to cut staff size in large numbers, leaving the level of initial jobless claims well below what is typically seen in a recession environment.
The Revised Q1 Productivity and Unit Labor Cost report brought some better news than the advance report but not exactly good news. It showed productivity declining 2.1% (Briefing.com consensus -2.7%) versus -2.7% in the advance estimate. In turn, unit labor costs were up 4.2% versus the advance estimate of up 6.3%.
The key takeaway from this report is that productivity was weak in the first quarter as the level of output (+0.5%) fell well shy of hours worked (+2.6%).
The May ISM Manufacturing Index and the April Construction Spending Report will be released at 10:00 a.m. ET. The ISM number is a potential market mover.
For now, the market isn’t expected to move much at the open so much as it is expected to swirl, taking in some good and bad news on this first day of June.
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Originally Posted June 1, 2023 – June to start with a swirl at today’s open, not a swoon
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