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US stocks rise on optimism that a US debt ceiling deal could be reached sooner rather than later. Target's Q2 outlook disappoints.

US futures

Dow futures+0.40% at 33125

S&P futures +0.38% at 4123

Nasdaq futures +0.21% at 13451

In Europe

FTSE -0.00% at 7744

Dax +0.37% at 15970

• Biden, McCarthy & Congressional leaders cautiously optimistic of a debt ceiling deal
• US housing starts suggest the market is holding up amid rate hikes
• Target falls on gloomy Q2 outlook
• Oil holds steady ahead of EIA data 
   

Debt ceiling talks & Target earnings

US futures are pushing higher on optimism surrounding the US debt ceiling talks. Following negotiations yesterday between President Biden, House Speaker Kevin McCarthy, and several congressional leaders, both sides sounded more hopeful of a deal being achieved saying that the lawmakers were on a path towards reaching a deal.

Biden will cut short a planned overseas trip to continue with talks in person. McCarthy added that a deal is possible by the end of the week.

This optimism is being reflected in the market, with futures rising modestly higher after losses yesterday. Despite an 8% rally in the S&P so far this year, stocks have traded sideways since April, partly on uncertainty over the debt ceiling, but also over the Fed’s next moves.

US Treasuries are steadying after yields rose across the curve yesterday. The 1-month treasury bill yield hit a record high on Wednesday. Today, the mood is calmer with the broad expectation that the two sides will be able to hash out a deal.

On the data front, US housing starts rose by more than forecast to 1.401 million, above the 1.37 million forecast, in a sign that the housing market is standing up to the Fed’s rate hikes.

Retailers are also in focus again today after Target reports and ahead of Walmart tomorrow. So far, the earnings have suggested that the consumer is holding up, but that is expected to change in the coming quarter.
 

Corporate news

Target falls pre-market after Q1 profits beat expectations and it maintained its 2023 annual profit expectations but forecast a gloomy second quarter.

Tesla rises pre-market after the EV maker reaffirmed that its long-awaited Cybertruck would be delivered this year. Elon Musk also hinted that Tesla could advertise its vehicles given the challenging macro environment.
 

Dow Jones outlook – technical analysis

The Dow Jones trades within a descending triangle pattern, which along with the RSI below 50 keeps sellers hopeful of further downside. Sellers could look for a break below 33,000, the psychological level and weekly low, to test 32935 the May low, and 32800 the 200 sma. A break below here could fuel a deeper selloff. Meanwhile, buyers could look for a rise above the 50 sma at 33165 and 33375 the 100 sma and falling trend line resistance to stage a breakout towards the 34000 round number.

(Click on image to enlarge)

FX markets – USD rises, EUR falls

The USD is rising to a 5-week high after hawkish Fed comments and on optimism that a debt ceiling deal could be achieved, avoiding a debt default in a few weeks’ time.

EUR/USD is falling after eurozone inflation was downwardly revised to 0.6% MoM in April, down from 0.7% in the preliminary reading and cooler than 0.9% in March. The data comes after the EU Commission upwardly revised the inflation outlook for the region to 5.8% in 2023.

GBP/USD is falling against a stronger U.S. dollar despite hawkish comments from Bank of England governor Andrew Bailey. Mr. Bailey warned of the risk of persistently high inflation and said that the central bank was ready to raise interest rates again. He cited high food inflation and a tight labor market as causes for the cost of living crunch to continue.

EUR/USD -0.22% at 1.0875

GBP/USD +0.46% at 1.25
 

Oil steadies ahead of EIA stockpile data

Oil is holding steady as concerns over future demand are matched by a tighter supply outlook.

A series of weaker-than-expected economic data from China, combined with fears of a recession in the US have hurt the demand outlook for oil, keeping prices pressurised.

Meanwhile, the International Energy Agency said in their monthly report that demand would outpace supply by two million barrels per day in the second half of the year thanks to a strong recovery in China.

According to the API US crude stockpiles rose by 3.6 million barrels in the week ending May the 12^th. This was well ahead of expectations of a 900,000-barrel drawdown.

EIA inventory data is due later today.

WTI crude trades +0.2% at $70.90

Brent trades at +0.2% at $74.92 
 

Looking ahead

15:30 EIA stockpile data

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