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Stocks are edging lower in cautious trade ahead of debt ceiling talks and US CPI data tomorrow.

US futures

Dow futures -0.27% at 33518

S&P futures -0.4% at 4122

Nasdaq futures -0.5% at 13218

In Europe

FTSE -0.8% at 7735

Dax -0.46% at 15789

• US debt ceiling worries linger
• Regional banks resume fall
• PayPal falls on margin worries
• Oil falls after 2-days of gains 
   

Debt ceiling worries linger

US stocks are heading for a weaker start after a mixed close in the previous session, as investors await cautiously for debt ceiling negotiations later and inflation data tomorrow.

President Biden will meet with top Republican and Democrat politicians in an attempt to move forward negotiations surrounding the debt ceiling. As we move closer to the start of June, when the US is expected to run out of money, the markets are likely to turn increasingly nervous, which could drag on risk assets such as stocks.

Treasury Secretary Janet Yellen has warned of an economic catastrophe if the two sides fail to trash out a deal.

Tomorrow’s CPI report will be the next key event and will provide clues about what the Federal Reserve will do in June with interest rates. Sticky inflation could fuel bets of another rate hike in June and scale back rate-cut bets.

The data comes after US jobs data on Friday smashed forecasts, easing recession fears in the US.

Elsewhere regional banks are once gain heading lower after two days of gains suggesting that the turmoil in the sector hasn’t abated.
 

Corporate news

PayPal falls pre-market despite beating earnings and revenue forecasts. The digital payment firm posted EPS of $0.70c, well ahead of the $0.43c forecast. Revenue was $7.04 billion ahead of estimates of $6.98 billion. The stocks fell on concerns over the outlook for margins.

Novavax rises 4% pre-market after posting strong guidance and restructuring plans. The pharma is planning to cut 25% on jobs as it looks to cut costs. The firm posted a loss per share of $3.41 on revenue of $81 million.

Airbnb and Rivian are big names set to report after the close.
 

Dow Jones outlook – technical analysis

The Dow Jones continues to trade within a descending channel. The price failed to rise above the 20 sma, and has eased lower and is heading towards the 100 sma at 33350. The RSI is breaking below the 50 level, hinting toward further losses. A break below 33350 exposes the 50 sma at 33140 and 33100, the May low. On the flip side, a rise above the 20 sma opens the door to 34000, the falling trendline resistance and round number. Above here 34265, the May high comes into play.

(Click on image to enlarge)

FX markets – USD rises EUR falls

The USD is edging higher in cautious trade as investors look to inflation data tomorrow. The USD is extending gains from yesterday when the Fed’s loan officer data showed the credit conditions were tightening but not so much so that a credit crunch is expected.

EUR/USD is under pressure as recession worries rise following weak data yesterday. ECB chief economist said that inflation will slow but that momentum is still high. Lane’s comments came after the ECB hiked rates by 25 bps last week and said that there was more work to do.

GBP/USD is holding steady above 1.26 as the pound remains supported by expectations that the BoE will hike rates on Thursday by 25 bps to 4.5%, and the market sees peak rates at 5% later in the year. BRC retail sales data shows that sales growth remained at 5.1%.

EUR/USD -0.22% at 1.0983

GBP/USD +0% at 1.2617
 

Oil eases after 2 days of gains

Oil prices are falling after two days of strong gains as investors digest the latest China trade data and look ahead to tomorrow’s inflation data.

Chinese trade data showed that imports unexpectedly fell, raising concerns over the domestic recovery following Covid. Data is showing that the recovery in the world’s largest oil importer is uneven and bumpy.

Attention is also turning US inflation data, which will likely be the next major catalyst for the market, providing fresh clues over the Fed’s next steps for monetary policy.

WTI crude trades -1% at $72.30

Brent trades at -0.96% at $76.12 
 

Looking ahead

17:00 Fed Williams speech

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