The three major indices of the U.S. New York stock market are all showing declines in early trading on the 31st (local time) as they await the scheduled vote on the debt ceiling agreement. The stronger-than-expected employment data has also heightened concerns about tightening by the Federal Reserve (Fed).
At around 10:55 a.m. on the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was down 270.65 points (0.82%) from the previous close, trading near the 32,772 level. The large-cap S&P 500 index fell 30.70 points (0.73%) to around 4,174, while the tech-heavy Nasdaq index dropped 63.78 points (0.49%) to about 12,953.
Currently, all sectors except for consumer staples within the S&P 500 are showing declines. The drops in financials, energy, consumer discretionary, industrials, and materials stocks exceed 1%. Nvidia, which touched a market capitalization of $1 trillion intraday yesterday thanks to the AI boom, is trading down more than 2% compared to the previous close this morning, taking a breather from its rally. AI semiconductor company Ambarella fell more than 16% after releasing disappointing Q2 earnings guidance. Advance Auto Parts also dropped over 33% due to weak results. HPE is down more than 6% amid earnings concerns. Fintech company SoFi rose more than 11% on hopes of student loan repayment relief if the debt ceiling agreement passes.
Investors are closely watching the U.S. House of Representatives' scheduled vote on the debt ceiling agreement around 8:30 p.m. today, along with key economic indicators. The House Rules Committee, known as the "gatekeeper," passed the agreement yesterday, officially advancing the congressional process. Patrick McHenry, a Republican negotiator and House member, appeared on CNBC's Squawk Box and expressed optimism, saying, "I believe we have secured enough votes for the bill to pass." If approved, the agreement will be sent to the Senate.
However, resistance continues, especially from hardline Republicans demanding the resignation of House Speaker Kevin McCarthy, drawing investor attention as a potential variable. The previously disclosed agreement essentially postpones the debt ceiling until January 1, 2025, in exchange for partial government spending cuts.
The U.S. Treasury had earlier indicated June 5 as the X-day when cash runs out. This week also features a large number of short-term Treasury auctions and redemptions, attracting investor focus. Major investment banks, including JPMorgan, have predicted that ongoing U.S. Treasury issuance under this agreement could lead to significant capital outflows from the stock market.
China's May manufacturing Purchasing Managers' Index (PMI) stood at 48.8, below the 50 baseline for the second consecutive month, while the U.S. economic indicators released today showed mixed results. The Chicago Federal Reserve Bank's PMI for May was 40.4, down from 48.6 the previous month. According to the Job Openings and Labor Turnover Survey (JOLTs) released the same day, April job openings rose to 10.1 million, up from the revised 9.75 million in March. This figure far exceeded market expectations, indicating a still-hot job market despite over a year of Fed tightening. Mark Hamrick, senior analyst at Bankrate, commented, "Job growth exceeded expectations. It is further evidence of labor market resilience."
This week will see the release of Fed-watched employment data, including the ADP employment report and the May nonfarm payrolls report. Since the Fed has cited inflation and an overheated labor market as reasons for additional tightening, continued stronger-than-expected employment data could further strengthen expectations for more Fed tightening.
The personal consumption expenditures (PCE) price index released last Friday showed a larger-than-expected increase, pushing up expectations for a Fed rate hike in June. According to the CME FedWatch tool, the federal funds futures market this morning reflects over a 65% probability that the Fed will raise rates by 0.25 percentage points in June, a sharp increase from about 36% just a week ago. Conversely, the probability of a rate hold dropped from the 63% range to 34%. The Fed's Beige Book, a report on economic conditions, is also scheduled for release this afternoon.
In the New York bond market, Treasury yields declined. The 10-year U.S. Treasury yield stood near 3.66%, while the 2-year Treasury yield, sensitive to monetary policy, was around 4.41%. The dollar index, which measures the dollar's value against six major currencies, rose more than 0.3% to about 104.5.
European stock markets are also down. Germany's DAX index is down 1.53%, the UK's FTSE is down 0.84%, and France's CAC has fallen 1.54%.
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