Economic Perspective: Markets cautious ahead of debt ceiling vote and impacted by Fed statements and China data

Economic

Perspective. We estimate that the expectation of the vote on the agreement to extend the debt ceiling in the US induces some caution in the markets throughout the session. In addition, they will continue to absorb somewhat restrictive statements from a Fed member, and worse-than-expected data from China, which overshadows lower-than-expected inflation in some European economies. Pending statements from other Fed members, the release of the Beige Book, and Friday’s job numbers, the yield of the treasury at 10 years it stands at 3.67%, while the dollar appreciates 0.3% against the basket of main currencies. The USDMXN is virtually unchanged at $17.65. The price of oil (WTI) falls 3.1% to 67.3 dpb, a level not seen in almost three months.

Fed Members. Yesterday, the Richmond Regional President, T. Barkin, commented that, once his inflation target is reached, it is possible to keep interest rates at a neutral level, ruling out that they must return to levels close to zero in each economic slowdown.

But: Inflationfromn may. Inflation slowed down surprisingly, and registered its lowest annual variation since March 2022 (6.1% obs., 7.3% esp., 7.2% ant.). On a monthly basis it also surprised by falling 0.1%, when it was expected to grow 0.6%.

WHO: PMI mayo. The manufacturer was located at 48.8 pts, disappointing the 51.4 pts expected, which would be its worst level so far this year, and with which it added two consecutive months in contractive terrain. For his part, although the non-manufacturing managed to stay in expansive territory (54.5 pts), he also disappointed his estimates and weakened compared to the previous reading.

to follow. In the US, the statements of some members of the Fed and the publication of the Beige Book, in Mexico, the quarterly report of Banxico.

stock market

Closing of the month and voting on the debt ceiling. The futures of the US stock markets operate in negative territory, awaiting the vote for the approval of the debt ceiling to avoid falling into default as of June 4. For their part, investors review the end of the month, where until yesterday’s close the Nasdaq presented the highest performance in May with 6.4%, benefited from corporate reports in the sector and the enthusiasm for artificial intelligence that made stocks rise. Like Nvidia, while the S&P presents a monthly balance of 0.9% and the Dow Jones a decline of 3.1%, in both the volatility due to debt negotiations has weighed on investor sentiment. Former Treasury Secretary Lawrence Summers sees inflation and public debt risks in the US, signaling that rates could rise an additional 50bp. Today’s agenda includes a large number of presentations by members of the Fed and on indicators, mortgage applications and the Chicago PMI. In Mexico there is a quarterly report from Banxico.

Positive

• SOFI: A deal to raise the debt ceiling would resume student loan payments.
• AMERICAN AIRLINES: He announced that he raised expectations for the second quarter in terms of profits and margin.

Neutral

• FEMSA: Announced the price of the offering of shares of Heineken y Heineken Holding through an accelerated book construction of shares, for a total amount of EUR 3.3 billion (approximately 6.0% of the stake in the Heineken Group, as well as the bilateral sale of additional shares to Heineken NV for EUR 500 million.

Negative

• ANHEUSER-BUSCH: It circulated in the media that the sales volume fell, the fall is led by Bud Light.
• HEWLETT PACKARD ENTERPRISE: It presented mixed figures with earnings per share of USD$0.52 exceeding the expected of USD$0.48; however, the action is pressed in pre-opening.

Money market

The 10-year Mexican bond valued at 8.82% (-6bp) and the spread of rates against the US bond at 513bp. The Mbono curve adjusted -5bp on average downwards, encouraged by the decline in US bond rates, which have alleviated a lot of pressure since it was announced that the debt ceiling plan had already been passed to Congress for approval and that with a good probability it would be approved before the projected deadline date.

At the open, we expect Mbonos to appreciate again, replicating the movement of US bonds that continue to benefit from the debt ceiling negotiation, particularly seeing more relief in short-term rates, which had been the most affected. The 10-year US bond closed at 3.69% (-11bp) and today falls to 3.67%.