S&P 500 Outlook: Stocks Flat On China Tensions & Ahead Of Debt Ceiling Talks

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US stocks are broadly flat as investors weigh up rising US-Sino trade tensions and look ahead to debt ceiling talks resuming.

US futures

Dow futures +0.10% at 33442

S&P futures +0.07% at 4194

Nasdaq futures +0.05% at 13807

In Europe

FTSE -0.24% at 7750

Dax -0.57% at 16203

  • Debt deal talks to resume
  • China bans Micron Technology chips for security reasons
  • USD eases with Fed speakers in focus
  • Fed Powell was more dovish on Friday 

Debt ceiling talks resume, China bans Micron Technology

Wall Street is pointing to a flat open amid deteriorating trade relations between the US and China and ahead of further debt ceiling talks.

It feels like one step forward to steps back after Republican negotiators walked out of debt ceiling talks on Friday. House Speaker Kevin McCarthy and U.S. President Biden are expected to meet this evening to resume negotiations. A quick phone call on Sunday between the two ended positively.

While Janet Yellen continues to warn about an early June X-date when the US will run out of money, this could be posturing to keep pressure on talks. Goldman Sachs has said the X-date is likely to be June 8th or 9th as the hard line to raise the $31.4 trillion ceiling. The investment bank has also warned that it sees a 25% probability that an agreement isn’t reached by the deadline. Worries that a deal won’t be reached are weighing on sentiment.

US – Sino trade tensions are on the rise, hurting sentiment after China banned chipmaker Micron Technology from selling memory chips to key domestic industries. The Cyberspace Administration of China said that the memory chip posed significant security risks to China.  This could prompt retaliation and further tit-for-tat moves. Sector peers such as Intel and Nvidia are heading lower.

Looking ahead US Fed speakers will be in focus, with speeches from James Bullard, Thomas Barkin, and Mary Daly due. Their comments come after Federal Reserve Jerome Powell sounded more dovish on Friday, saying that the Fed may not need to raise rates by as much as expected.

Corporate news

Meta falls after being fined $1.2 billion by the European Union’s lead privacy regulator over personal data transfers from the EU to the US.

Chip makers will be in focus after Micron’s ban from China.

S&P 500 outlook – technical analysis

The S&P 500 attempted to break out of the holding pattern within which it has traded since early April. The index closed just above the 4190 resistance, which, together with the bullish RSI keeps buyers hopeful of further upside.  Resistance can be seen at 4215, the 26th August high, with a rise above here opening the door 4300 round number and 4325 the August 2022 high. On the downside, a break below support at 4190 here exposing the 20 sma at 4130. A break below 4100 opens the door to the May low at 4050.

FX markets – USD falls, EUR rises

The USD is edging lower, extending Friday’s losses after Fed Chair Powell’s more dovish comments. Fed speakers and debt ceiling talks could influence the direction of the USD.

EUR/USD is edging cautiously higher, capitalizing on the weaker USD. Hawkish comments from ECB president Christine Lagarde at the end of last week are supporting in a common currency. Christine Lagarde said that the central bank still has work to do in order to time interest rates. Expectations are for two more rate hikes. ECB’s Philip Lane and Luis De Guindos are due to speak.

GBP/USD is rising as in a quiet session for UK economic data. UK house prices jumped by the most this year as confidence improves after gloomy predictions from the start of the year appear overdone. UK inflation data on Wednesday is the key release and could help fuel bets as to whether the BoE will hike rates or not in June.

EUR/USD +0.12% at 1.0814

GBP/USD +0.14% at 1.2455

Oil sits flat as US debt talks are eyed

Oil prices are flat at the start of the week as nerves relating to the US debt ceiling are being offset by lower supplies from Canada and OPEC producers.

Worries that the US could default on its debt are rising again, as talks are set to resume. Oil markets are concerned about the economic impact should such a scenario take place and the hit that it would have on demand.

However, this is being offset by expectations that demand will eclipse supply by almost 2 million barrels payday in the second half of the year, as warned by the International Energy Agency in its monthly report.

Meanwhile, on the supply side, wildfires in Alberta, Canada have affected output, and OPEC+ cuts will also be taking effect this month.

  • WTI crude trades +0.2% at $71.90
  • Brent trades at +0.13% at $75.62

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