Month: June 2023

(C) Reuters.

Investing.com– Most Asian currencies advanced on Thursday, while the dollar inched lower tracking comments from Federal Reserve officials touting a potential pause in the rate hike cycle in June.

Markets were also somewhat encouraged by the U.S. House of Representatives voting in favor of a bill to raise the debt ceiling and avert a U.S. default, with the bill now headed for a final vote in the Senate later this week. This comes ahead of a June 5 deadline for a U.S. default, the prospect of which has kept markets on edge over the past week.

China’s yuan rose 0.2%, rebounding from six-month lows as a private survey showed that manufacturing activity in the country grew more than expected through May. The data clashed with an official survey that showed a sustained contraction in China’s biggest economic engine, although the divergence could be linked to a difference in scope between the two surveys.

Still, concerns over a slowing economic rebound in China persisted, given that the private survey only showed a marginal improvement in activity. These concerns, coupled with a string of weak daily yuan midpoint fixes by the People’s Bank, had battered the Chinese currency in recent weeks.

Other Asian currencies also rose on Thursday, benefiting from some weakness in the dollar as Philadelphia Fed President Patrick Harker said on Wednesday that skipping a rate hike during the June 14 meeting could allow the bank more time to consider future rate decisions.

The South Korean won added 0.1%, although further gains were held back by weaker-than-expected export and import data. South Korean manufacturing activity also contracted in May.

The Japanese yen was flat, but was trading well above recent six-month lows hit against the dollar. Stronger-than-expected capital spending data for the first quarter also pointed to a potential upward revision in GDP for the period.

The Australian dollar pared early losses following the positive Chinese data, and was also supported by stronger-than-expected capital expenditure readings for the first quarter.

The U.S. dollar index and dollar index futures fell 0.1% each in Asian trade. While Harker specified that the Fed could still hike rates further after a June pause, his comments triggered some profit taking in the dollar at 10-week highs.

Focus is now on U.S. nonfarm payrolls data, due on Friday, for more cues on monetary policy. The prospect of U.S. rates staying higher for longer weighed on Asian markets through the past year, and is expected to limit gains in the region for the time being.

(C) Reuters. U.S. House Speaker Kevin McCarthy (R-CA) talks to reporters after voting on the House floor in the midst of ongoing legislative wrangling over whether to raise the United States’ debt ceiling and avoid a catastrophic default, at the U.S. Capitol in Washin

WASHINGTON (Reuters) – A majority of the U.S. House of Representatives voted on Wednesday to approve a bipartisan bill to suspend the government’s $31.4 trillion debt ceiling, just five days before the deadline to avoid a crippling default.

Voting continued on the legislation, which must also be approved by the Democratic-majority Senate before President Joe Biden can sign the measure into law.

(C) Reuters

Investing.com — Stocks sank on Wednesday as investors awaited the outcome of the vote on the debt ceiling deal, over objections from GOP members who wanted more spending cuts.

The voting has begun in the House as of Wednesday afternoon, though an outcome isn’t expected until later. Speaker Kevin McCarthy has expressed confidence the bill will pass, and be sent on to the Senate. But lawmakers are still scrambling to get the deal to President Joe Biden’s desk before a June 5 deadline, when the U.S. risks defaulting on its obligations.

The bill calls for caps on spending this year and into the 2025 fiscal year and reclaims some funds that were allocated already for COVID-19 relief and building the enforcement capabilities of the Internal Revenue Service.

In addition, investors are looking to a slew of retail earnings on their way and a jobs report for May, which is expected out on Friday.

Comments from Federal Reserve officials on Wednesday suggested the central bank could delay another interest rate increase when it meets in June, helping send the probability of a pause higher. Futures traders have been shifting their outlooks on the matter, earlier today seeing a greater probability of a quarter of a percentage point rate increase next month.

The jobs report could help the Fed make up its mind.

Here are three things that could affect markets tomorrow:

1. Job reports

The ADP private payrolls report, due out at 8:15 ET is expected to show an addition of 170,000 nonfarm jobs last month. Before that report, the Challenger job cuts number comes out at 7:30 ET. The number is expected to be up 227% from the same time last year amid a slew of job cuts in the tech sector.

2. Broadcom earnings

The chip maker Broadcom Inc (NASDAQ:AVGO) is expected to report earnings of $10.12 a share on revenue of $8.7 billion.

3. Dollar General

The discount retailer Dollar General Corporation (NYSE:DG) is expected to report earnings per share of $2.39 on revenue of $9.4B.

(C) Reuters

Investing.com — A pause on rate hikes in June was given a major boost Wednesday after Federal Reserve officials signaled a willingness to skip raising rates next month to assess incoming data.

“Skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming,” Philadelphia Federal Reserve President Patrick Harker said Wednesday.

The comments pushed the odds of a pause to 63% from 37% a day earlier, according to Investing.com’s Fed Rate Monitor Tool.

The Philly Fed president stressed, however, that a pause wouldn’t imply that the Fed has “reached the peak rate for this cycle.”

Uncertainty about how much the recent banking stress will tighten credit standards further and the impact on the economy strengthen the case to skip a meeting, Harker added.

The comments echoed that of Fed Governor and vice chair nominee Philip Jefferson, who also made the case for a so-called hawkish pause by skipping a rate hike next month.

“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Jefferson said on Wednesday.

(C) Reuters.

Investing.com — The Dow slipped Wednesday, pressured by a retail-led plunge in consumer stocks and weakness in tech just as investors eagerly await the outcome of a key vote on the debt-ceiling bill.

The S&P 500 was down 0.1%, the Dow Jones Industrial Average fell 0.4%, or 135 points lower, and the Nasdaq gained 0.6%.

Passage of the debt ceiling bill continued to dominate attention with just hours until the U.S. House of Representatives is expected to vote on the legislative measure to increase the debt ceiling and avoid a default.

The bill would require votes from both sides of the political aisle as Republicans have a narrow 222-213 majority in the House. The outcome of the vote is expected later on Wednesday.

As well as uncertainty over passage of the debt-ceiling bill, falling consumer stocks amid pressure from Advance Auto Parts , also dragged the broader market lower.

Advance Auto Parts Inc (NYSE:AAP) cut its quarterly dividend and reported quarterly results that missed Wall Street estimates, sending the car parts retailer’s stock 35% lower.

Automakers including Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM), down more than 4% and 2% respectively, also weighed on consumer stocks.

Elsewhere on the earnings front, HP Inc (NYSE:HPQ) fell more than 5% after reporting mixed quarterly results as revenue fell short of expectations on pressure from weaker PC demand.

Personal systems revenue fell 29% year over year in Q2, “reflecting continued weakness in consumer spending and increased scrutiny on enterprise budgets,” Credit Suisse said in a note.

Tech, meanwhile, took a breather from its recent climb as the AI-driven rally in chipmakers and other related stocks mostly ran out of steam.

NVIDIA Corporation (NASDAQ:NVDA) fell more than 5%, C3 Ai Inc (NYSE:AI) slipped 9%, while Intel Corporation (NASDAQ:INTC) bucked the trend lower rising almost 5% as the chipmaker talked up the prospect of a turnaround and received a vote of confidence from Nvidia.

Nvidia CEO Jensen Huan said the company could source chips from Intel.

“You know that we also manufacture with Samsung (KS:005930), and we’re open to manufacturing with Intel,” Huan said.

Energy continued its slide this week as oil prices fell further below $70 a barrel ahead of the upcoming OPEC+ meeting this weekend.

“We expect the nine major OPEC+ producers which announced voluntary production cuts in April to keep production unchanged, but utilize some partly offsetting hawkish rhetoric,” Goldman Sachs said in a note.

On the economic front, labor demand showed signs of strength as job openings topped forecasts in April, but bets on a Fed pause scored a major victory on Wednesday.

Philadelphia Federal Reserve President Patrick Harker and Fed Governor and vice chair nominee Philip Jefferson both said Wednesday that the central bank could pause rate hikes at next month’s meeting.

Jefferson warned, however, that a pause wouldn’t imply the Fed’s rate hike cycle has come to an end.

“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Jefferson said on Wednesday.

(C) Reuters. FILE PHOTO: President Joe Biden shakes hands with House Speaker Kevin McCarthy of Calif., after the State of the Union address to a joint session of Congress at the Capitol, Tuesday, Feb. 7, 2023, in Washington. Jacquelyn Martin/Pool via REUTERS

By David Morgan, Richard Cowan and Moira Warburton

WASHINGTON (Reuters) – A divided U.S. House of Representatives passed a bill to suspend the $31.4 trillion debt ceiling on Wednesday, with majority support from both Democrats and Republicans to overcome opposition led by hardline conservatives and avoid a catastrophic default.

The Republican-controlled House voted 314-117 to send the legislation to the Senate, which must enact the measure and get it to President Joe Biden’s desk before a Monday deadline, when the federal government is expected to run out of money to pay its bills.

“This agreement is good news for the American people and the American economy,” Biden said after the vote. “I urge the Senate to pass it as quickly as possible so that I can sign it into law.”

The measure, a compromise between Biden and House Speaker Kevin McCarthy, drew opposition from 71 hardline Republicans. That would normally be enough to block partisan legislation, but 165 Democrats – more than the 149 Republicans who voted for it – backed the measure and pushed it through.

Republicans control the House by a narrow 222-213 majority.

The legislation suspends – in essence, temporarily removes – the federal government’s borrowing limit through Jan. 1, 2025. The timeline allows Biden and Congress to set aside the politically risky issue until after the November 2024 presidential election.

It would also cap some government spending over the next two years, speed up the permitting process for certain energy projects, claw back unused COVID-19 funds and expand work requirements for food aid programs to additional recipients.

Hardline Republicans had wanted deeper spending cuts and more stringent reforms.

“At best, we have a two-year spending freeze that’s full of loopholes and gimmicks,” said Representative Chip Roy, a prominent member of the hardline House Freedom Caucus.

Progressive Democrats – who along with Biden had resisted negotiating over the debt ceiling – oppose the bill for a few reasons, including new work requirements from some federal anti-poverty programs.

“Republicans are forcing us to decide which vulnerable Americans get to eat or they’ll throw us into default. It’s just plain wrong,” said Democratic Representative Jim McGovern on Wednesday.

Late on Tuesday, the non-partisan Congressional Budget Office said the legislation would result in $1.5 trillion in savings over a decade. That is below the $4.8 trillion in savings that Republicans aimed for in a bill they passed through the House in April, and also below the $3 trillion in deficit that Biden’s proposed budget would have reduced over that time through new taxes.

SENATE UP NEXT

In the Senate, leaders of both parties said they hoped to move to enact the legislation before the weekend. But a potential delay over amendment votes could complicate matters.

Republicans said Senate Majority Leader Chuck Schumer and Senate Minority Leader Mitch McConnell could need to allow votes on Republican amendments to ensure quick action.

But Schumer appeared to rule out amendments on Wednesday, telling reporters: “We cannot send anything back to the House, plain and simple. We must avoid default.”

Senate debate and voting could stretch into the weekend, especially if any one of the 100 senators tries to slow passage.

Hardline Republican Senator Rand Paul, long known for delaying important Senate votes, has said he would not hold up passage if allowed to offer an amendment for a floor vote.

Senator Bernie Sanders, a progressive independent who caucuses with the Democrats, said he would oppose the bill due to inclusion of an energy pipeline and extra work requirements. “I cannot, in good conscience, vote for the debt ceiling deal,” Sanders said on Twitter.

In a win for Republicans, the bill would shift some funding away from the Internal Revenue Service, although the White House says that should not undercut tax enforcement.

Biden can point to gains as well.

The deal leaves his signature infrastructure and green-energy laws largely intact, and the spending cuts and work requirements are far less than Republicans had sought.

Republicans have argued that steep spending cuts are necessary to curb the growth of the national debt, which at $31.4 trillion is roughly equal to the annual output of the economy.

Interest payments on that debt are projected to eat up a growing share of the budget as an aging population pushes up health and retirement costs, according to government forecasts. The deal would not do anything to rein in those fast-growing programs.

Most of the savings would come by capping spending on domestic programs like housing, education, scientific research and other forms of “discretionary” spending. Military spending would be allowed to increase over the next two years.

The debt-ceiling standoff prompted ratings agencies to warn that they might downgrade U.S. debt, which underpins the global financial system.

Credit rating agency DBRS Morningstar put the United States on review for a possible downgrade last week, echoing similar warnings by Fitch, Moody’s (NYSE:MCO) and Scope Ratings.

Another agency, S&P Global (NYSE:SPGI), downgraded U.S. debt following a similar debt-ceiling standoff in 2011 during a similar partisan divide with a Democratic president and Senate majority and a Republican-majority House.