Five things you need to know before the market opens on Friday May 12:
1. — Stock Futures Higher As Inflation Risks Fade
U.S. equity futures moved higher Friday, while Treasury bond yields held steady and the dollar found favor against its global peers, as investors looked to close out a week of indecision on Wall Street as fading inflation prospects give way to renewed recession concerns.
A muted reading of factory gate inflation over the month of April, which followed a mixed CPI reading, suggests price pressures will continue to abate over the coming months, although some noise within the data will likely keep investors from finding conviction in any significant change in the Federal Reserve‘s rate path.
A modestly better-than-expected first quarter earnings season, which is likely to see collective S&P 500 profits fall by only 0.7% to a share-weighted $438.1 billion, has also added to broader market sentiment, although a spike in weekly jobless claims, accelerating layoffs and a slump in capital spendings plans by small and medium-sized companies suggests the U.S. economy could weaken considerably over the coming months.
That concern could be evident in this week’s bond market moves, which pulled benchmark 10-year note yields at least 10 basis points lower since Wednesday, to 3.405% in overnight trading, even amid renewed worries over the fate of the U.S. debt ceiling.
Benchmark 2-year note yields eased to 3.912% in overnight trading, as well, while the U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.1% higher at 102.148.
Oil prices were also on the back foot, putting crude markets on pace for a fourth consecutive weekly decline, amid worries that global demand will fade as recession risks accelerate.
WTI crude futures for June delivery, which are closely tied to U.S. gasoline prices, were marked 7 cents lower at $70.80 per barrel while Brent contracts for July, the global benchmark, fell 11 cents to $74.86 per barrel.
Heading into the start of the trading day on Wall Street, futures tied to the S&P 500 were priced for a 17 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 145 point bump. The tech-focused Nasdaq was marked 37 points higher.
In Europe, the region-wide Stoxx 600 was marked 0.64% higher in early Frankfurt trading, powered in part by a record high for luxury goods maker Richemont, while London’s FTSE 100 gained 0.43% following data showing the U.K. economy grew by 0.1% over the first three months of the year, avoid recession risks linked in part to its weaker post-Covid recovery.
Overnight in Asia, the region-side MSCI ex-Japan index was marked 0.61% lower into the close of trading while the Nikkei 225 ended 0.9% higher at 29,388.30 points.
2. — Tesla Shares Gain As Musk Finds New Twitter CEO
Musk, who paid $44 billion for Twitter in October last year, has long maintained he would relinquish control of the social media website when he found someone “foolish enough” to replace him as CEO.
But with Tesla facing myriad challenges with respect to increased competition, fading consumer demand, supply chain disruptions and crushing margin pressures, shareholders have been pressuring Musk to name a replacement more quickly than his original suggestion.
Musk said the new CEO, whom media reports have identified as NBCUniversal ad executive Linda Yaccarino, will start “in around six weeks” when he will transition to the role of chief technology officer.
Tesla shares, which have fallen more than 52% since Musk first made his intentions to purchase Twitter public in April of last year, were marked 1% higher in pre-market trading to indicate an opening bell price of $173.73 each.
3. — Microsoft Faces Another Legal Challenge to $69 Billion Activision Deal
Activision (ATVI) – Get Free Report shares edged higher in pre-market trading ahead of a hearing in a California court that could decide the fate of the video game maker’s $69 billion takeover by Microsoft (MSFT) – Get Free Report.
A group of video game enthusiasts are seeking to overturn the deal, arguing it will stifle industry innovation and raise prices, and will ask U.S. District Judge Jacqueline Corley later today in San Francisco to issue a preliminary injunction against it.
Microsoft offered to buy Activision for $95 per share in January of 2022, and the deal would allow it access to 30 internal game development studios, as well as e-sports publishing capabilities while helping build-out its XBox console offerings.
The move echoes similar concerns raised by the U.S. Federal Trade Commission, which is also suing to block the deal, as well as comments from Britain’s Competition and Markets Authority, which ruled against the takeover last month in London.
“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors,” the CMA said in its ruling on April 26.
Activision shares were marked 0.1% higher in pre-market trading, indicating an opening bell price of $77.10 each. Microsoft was marked 0.02% lower at $310.04 each.
4. — PacWest Leads Regional Banks Higher As FDIC Unveils New Funding
Regional Bank stocks were back in the green Friday after the Federal Deposit Insurance Corporation unveiled plans for larger U.S. lenders to replenish its rescue fund.
The FDIC, which has spent more than $16 billion of its $128.2 billion in funds so far this year amid the failure of Silicon Valley Bank, the closure of Signature Bank and the sale of First Republic to JPMorgan JPM, will impose a 0.125% levy on lenders with uninsured deposits over $5 billion.
The fee would place the bulk of the refinancing burden on large U.S. lenders, with estimates suggesting the top 14 banks would pay around $5.8 billion each year, for two years, starting in 2024
PacWest Bancorp (PACW) – Get Free Report shares, which closed 22.7% lower in a volatile Thursday session, were marked 1.5% higher in pre-market trading at $4.77 each. Western Alliance (WAL) – Get Free Report shares gained 2.5% while Zions Bancorp (ZION) – Get Free Report was up 0.6%.
5. — Biden Postpones Meeting With McCarthy As Debt Ceiling Talks Hint Progress
President Joe Biden postponed a meeting with House Speaker Kevin McCarthy until next week, suggesting the two could be moving closer to agreement on debt ceiling talks that would avoid a near-term U.S. default.
Biden, who was slated to meet with McCarthy at the White House on Friday, will instead allow his aides to continue working with the Speaker’s in order to hammer out a compromise in what has become a bitter partisan battle over the $31.4 trillion limit.
McCarthy, however, continued to push for spending cuts in public comments to reporters in Washington late Thursday, saying that President Biden “doesn’t want to deal. He wants to default.”
House Republicans passed a bill late last month calling for $4.8 trillion in spending cuts, phased over the next ten years, in exchange for a one-year, $1.5 trillion increase in the debt ceiling. Democrats, who control the Senate, have rejected the cuts as a ‘dead on arrival’.
Treasury Secretary Janet Yellen, meanwhile, told Bloomberg TV Friday that a failure by Congress to raise the debt ceiling “would really really impair our credit rating”, and repeated her warning that default would be “an economic and financial catastrophe.”