Before the Bell: Futures dip as debt talks dominate - The Globe and Mail

Equities

Wall Street futures slid early Tuesday after talks to raise the U.S. debt ceiling were described as productive but failed to yield an agreement. Major European markets were mostly lower. TSX futures were down slightly as traders await results from Canada’s biggest banks later in the week.

In the early premarket period, Dow, S&P and Nasdaq futures were all wavering just below break even. On Monday, the S&P 500 and Nasdaq both ended higher but the Dow finished down 0.42 per cent. Canada’s S&P/TSX Composite Index was closed on Monday for the Victoria Day holiday.

Markets continue to focus on progress in reaching an agreement to raise the U.S. debt limit ahead of June 1, the earliest date for a possible default. U.S. President Joe Biden and House Speaker Kevin McCarthy met again on Monday afternoon. McCarthy described the talks as professional and productive but no deal was reached. He said both he and Mr. Biden are aware of the approaching deadline and will continue to meet “until we get this done.”

“There was a glimmer of optimism that House Speaker Kevin McCarthy and Vice President Joe Biden would be able to reach an agreement and present it to Congress before the United States federal government will run out of money,” Naeem Aslam, chief investment officer with Zaye Capital Markets, said.

“However, it now seems like history will repeat itself, and this implies that there is a larger probability that we may see a short-term increase of the debt limit or a last-minute compromise similar to the one that occurred before.

In this country, the big banks will be in the spotlight as they begin reporting results starting tomorrow. Bank of Montreal and Bank of Nova Scotia both report Wednesday morning. CIBC, Royal Bank and Toronto-Dominion Bank all release earnings on Thursday.

The Globe’s Stefanie Marotta reports Canada’s banks are facing a hit to their profits as high borrowing costs and economic uncertainty increase pressure to set aside more money for loan losses, prompting analysts to further lower their earnings expectations. Second-quarter earnings per share are expected to drop 8 per cent to 9 per cent compared with a year earlier.

Overseas, the pan-European STOXX was down 0.30 per cent by midday. Britain’s FTSE 100 edged up 0.35 per cent. Germany’s DAX and France’s CAC 40 slid 0.31 per cent and 0.94 per cent, respectively.

In Asia, Japan’s Nikkei finished down 0.42 per cent, ending a seven-day winning streak. Hong Kong’s Hang Seng lost 1.25 per cent.

Commodities

Crude prices reversed early losses positive demand outlook offset tentative risk sentiment amid ongoing talks over raising the U.S. debt ceiling.

The day range on Brent was US$75.65 to US$76.53 in the early premarket period. The range on West Texas Intermediate was US$71.71 to US$72.62.

“Crude prices are in no man’s land as energy traders look to see what happens with both debt ceiling talks and with U.S. and China tensions,” OANDA senior analyst Ed Moya said.

“Oil is wavering and that should continue as long traders await a major update with the current macro backdrop,” he said.

Prices drew some support from an expected demand increase ahead of next weekend’s Memorial Day holiday in the United States.

Reuters reports that crude prices gained a tailwind yesterday from a 2.8-per-cent increase in gasoline futures in anticipation of the holiday weekend, which typically marks the beginning of the summer travel season.

Also bolstering prices were comments early Tuesday from Saudi Arabia’s energy minister who he would keep short sellers - those betting that prices will fall - “ouching” and told them to “watch out”, Reuters reported.

In other commodities, spot gold fell 0.4 per cent to US$1,961.55 per ounce by early Tuesday morning. U.S. gold futures were down 0.6 per cent to US$1,965.20.

“Gold will likely remain a choppy trade as we head towards the X-date [in the U.S. debt ceiling talks], but if DC is able to get a deal done early this week, that could lead to a decent selloff for bullion towards the US$1950 region,” Mr. Moya said.

Currencies

The Canadian dollar was lower while its U.S. counterpart traded near last week’s two-month high as U.S. debt talks continue and markets weigh the prospect of U.S. interest rates remaining higher for longer.

The day range on the loonie was 73.87 US cents to 74.16 US cents in the predawn period.

There were no major Canadian economic releases due Tuesday morning.

“Overnight markets have been very quiet,” RBC chief currency strategist Adam Cole said.

“Last night’s debt ceiling talks ended with no deal, but Biden said the two sides ‘reiterated once again that default is off the table’ and McCarthy confirmed the two would meet every day until a deal is done.”

Against a basket of currencies, the U.S. dollar rose 0.1 per cent to 103.41, not far from a roughly two-month high of 103.63 hit last week, according to figures from Reuters.

The euro fell 0.2 per cent to US$1.0795 and is down around 2 per cent for the month so far.

Britain’s pound was down 0.3 per cent at US$1.24 early Tuesday morning.

In bonds, the yield on the U.S. 10-year note was slightly higher at 3.721 per cent ahead of the North American opening bell.

More company news

Lowe’s Cos Inc cut its annual comparable sales forecast on Tuesday, as demand dwindles for home improvement goods with high inflation forcing consumers to cut back on discretionary spending. The company now expects full-year comparable sales to fall between 2% and 4%, compared to a prior outlook of flat to down 2%. Analysts on average were expecting a 2.13% drop, according to Refinitiv IBES data. -Reuters

Economic news

(8:30 a.m. ET) Canada’s industrial product and raw materials price index for April.

(9:45 a.m. ET) U.S. S&P Global PMIs for May.

(10 a.m. ET) U.S. new home sales for April.

With Reuters and The Canadian Press

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2023-05-23 09:24:34Z
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