Q3 Earnings Alert! Plan early for this week’s stock reports with all key data in 1 placeSee list

Marketmind: US debt ceiling drama aside, world economy looks shaky

Published 2023-05-18, 06:02 a/m
© Reuters. An options floor broker works on the floor of the NYSE American, formerly known as the American Stock Exchange (AMEX) at New York Stock Exchange (NYSE) in New York City, U.S., May 10, 2023.  REUTERS/Brendan McDermid
USD/CAD
-
NDX
-
US500
-
US2000
-
AMAT
-
AAPL
-
WMT
-
HD
-
TGT
-
BABA
-

A look at the day ahead in U.S. and global markets from Naomi Rovnick

Risk appetite has perked up on global markets thanks to optimism that U.S. Democrats and Republicans are nearing a deal to raise the debt ceiling and avoid an economically catastrophic default.

European and Asian shares rose on Thursday, the dollar held near a seven-week peak against a basket of major currencies and Wall Street stock futures are hinting at a steady open after the S&P 500 index gained about 1.2% on Wednesday.

But while a debt ceiling reprieve could boost markets in coming days, the backdrop of a lacklustre global economy is unchanged, with its twin engines, China and the United States, sputtering.

A dose of growth from China would help long-term risk appetite, but predictions of the world's second largest economy leaping out of the straitjacket of COVID-19 restrictions are proving wide of the mark.

The Chinese renminbi has crossed 7 per dollar, down 1.4% this year, following underwhelming industrial production and retail sales reports and slowing home price gains, all despite property stimulus policies and the release of pent-up demand.

Citi's China economic surprise index is at its lowest since January, a further sign that the growth outlook has weakened.

U.S. corporate earnings meanwhile are painting a grim picture of consumer caution as the lagged effect of interest rate hikes meets above-target inflation.

Big box retailer Target (NYSE:TGT) on Wednesday signaled a bleak second quarter as customers steer away from spending on non-essential electronics and home goods because of high prices, a day after Home Depot (NYSE:HD) cut annual sales estimates.

Walmart (NYSE:WMT), which may be on a stronger footing because of its focus on low-price basics, posts its own update later in the day.

The S&P 500 is trading at a rich 18 times forecast earnings, buoyed by the tech mega-stocks that dominate the index. Apple (NASDAQ:AAPL)'s market capitalization exceeds that of the small-cap Russell 2000 index, and the tech-heavy Nasdaq 100 is up 24% this year.

Tech has boomed on predictions the U.S. Federal Reserve will start cutting rates from July, increasing appetite for rate-sensitive growth companies whose valuations are flattered when money gets cheaper. Further out-performance depends on markets being right about the Fed's willingness to notch interest rates lower from July.

A plethora of Fed speakers argued this week, however, for keeping monetary policy tight while inflation remains high.

Developments that could affect markets on Thursday:

* Economic events: U.S. initial jobless claims, U.S. existing home sales, Philly Fed business index.

© Reuters. An options floor broker works on the floor of the NYSE American, formerly known as the American Stock Exchange (AMEX) at New York Stock Exchange (NYSE) in New York City, U.S., May 10, 2023.  REUTERS/Brendan McDermid

* Central bank speakers: Fed governor Philip Jefferson, Fed vice chair for supervision Michael Barr.

* Earnings: Walmart, Alibaba (NYSE:BABA), Applied Materials (NASDAQ:AMAT).

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.