Dow was finished down only 35 on hopes for the talks in DC to succeed, decliners over advancers about 2-1 & NAZ shot up 213. The MLP index slid back 1+ to the 223s & the REIT index settled even at 350. Junk bond funds remained lower & Treasuries had significant selling which increased yields. Oil gave back 2+ to the 71s & gold went down 21 to 1943 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
A stark new warning from the Fitch credit rating agency about US debt added fresh urgency to ongoing debt ceiling negotiations between the White House & congressional Reps, with only 7 days to go before the US faces an imminent threat of debt default. Fitch Ratings, one of the big 3 ratings agencies, announced late yesterday that it had placed the US triple-A status on “rating watch negative.” “The brinkmanship over the debt ceiling, failure of the US authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits & a growing debt burden signal downside risks to U.S. creditworthiness,” Fitch said. The agency also strongly implied that if Congress could not reach a deal before the Treasury Dept's Jun 1 deadline to raise or suspend the debt limit, Fitch would downgrade America's credit rating. Such a failure “would be a negative signal of the broader governance and willingness of the U.S. to honor its obligations in a timely fashion, which would be unlikely to be consistent with a ‘AAA’ rating, in Fitch’s view.” The warning came just hours after House Speaker Kevin McCarthy sought to calm jittery financial markets. “I wouldn’t scare the markets in any shape or form,” he said yesterday. “We will come to an agreement ... and there should not be any fear.” Yesterday, negotiators appeared to have made little discernible progress in more than a week of near round-the-clock talks. Adding to concerns about the deadline was the decision by House leadership to send members home for a weeklong recess, albeit with instructions to stand ready to return to DC if their votes were needed to pass a compromise bill resulting from a deal reached by Pres Biden & McCarthy. “I don’t know if we have a deal today,” McCarthy said yesterday as he entered the Capitol. “We’ve already talked to the White House today, we’ll continue to work,” he said. “They’re working on numbers, we’re working on numbers and we’ll work together.” One influential Rep said he was optimistic about reaching a deal before the holiday weekend. Rep Kevin Hern, who chairs the 156-member Rep Study Committee, said that he believed it was “likely” a deal would be reached by tomorrow PM. “We are inching closer to a deal. I think it’s some of the finer points they are working on right now,” Hern said. “You are likely to see a deal by tomorrow afternoon.” Dems meanwhile, have become increasingly critical this week of the White House's apparent choice not to divulge details of the talks on a regular basis. It's a tactic that stands in stark contrast to McCarthy's full court PR press of chatting with journalists several times a day about the talks & appearing on TV near daily. The White House sought to deflect the criticism, arguing that Biden had been speaking about the debt ceiling for months. “We’ve been very clear for the past five months,” White House press secretary Karine Jean-Pierre said earlier this week. Yesterday, White House chief of staff Jeff Zients issued a rare tweet on the debt ceiling. “Even now, Republicans want to add $3.5 trillion to the debt by extending the Trump tax giveaways for the wealthy,” he wrote. What Zients didn't say is that Biden also wants to extend those cuts but only for households making less than $400K & offset the cost by raising other taxe
Debt ceiling negotiations intensify as Fitch ratings warning on U.S. credit adds urgency
The number of Americans filing for unemployment benefits last week inched higher, but previous weeks of data were revised lower after Massachusetts reported a surge in fraudulent claims. Figures from the Labor Dept show initial claims for last rose by 3K to 229K, slightly above the 2019 pre-pandemic average of 218K claims. However, the 2 previous weeks were revised down by a combined 50K, indicating the labor market remains stronger than previously expected. Continuing claims, filed by Americans who are consecutively receiving unemployment benefits, dropped to 1.79M, a decrease of 5K from the previous week. Some economists have warned that it's difficult to get a clear picture of what's happening in the labor market after Massachusetts state officials acknowledged they are "experiencing an increase in fraudulent claim activities" involving unemployment benefits. A separate report released indicated that Massachusetts downwardly revised months' worth of jobless claims after it discovered fraudulent filings were inflating the data. In total, Massachusetts reported 171K fewer jobless claims than previously reported. For months, the labor market has remained a strong point in the cooling economy, defying expectations for a slowdown despite the aggressive interest-rate hike campaign by the Federal Reserve. Economists widely expect unemployment to climb higher as a result of steeper interest rates, which could force consumers & businesses to pull back on spending. Other economic data also pointed to an economy that is surprisingly resilient, even in the face of higher interest rates, a banking crisis & chronic inflation. Q1 GDP grew at a 1.3% annual pace, updated data shows, faster than the 1.1% initially reported.
Jobless claims rise less than expected after fraudulent filings are wiped out
Best Buy (BBY) topped quarterly earnings expectations, but its sales
missed estimates & it reiterated expectations for weaker spending on consumer electronics this year. The
retailer affirmed the outlook it shared in Mar. It expects full-year
revenue of $43.8-45.2B, a decline from its
most recent fiscal year, & a comparable sales drop of 3-6%. CEO Corie Barry said as shoppers face
higher prices for housing, food & fuel, they are making trade-offs by
buying some items and skipping others. “We’ve been seeing a
consumer who is — whether or not you call it a recession — exhibiting
some recessionary behaviors,” she added. But Barry said the retailer expects the calendar year to be “the bottom for
the decline in tech demand.” She said sales will bounce back because
households now have far more connected devices than pre-pandemic. The
debut of innovative products & the aging of items that customers have
at home will spark replacements or new purchases too. EPS was $1.11, down from $1.49 a year earlier. Net
sales in the qtr declined to $9.5B, down 11% from $10.6B in the year-ago period & fell short of expectations. Comparable sales declined 10.1% in the qtr, in line with the drop expected by investors, according to StreetAccount. Online sales drove roughly 1/3 of the company's revenue in the US
in the first quarter, Barry said. That share has been steady over the
past 2 years & it is twice as high as pre-pandemic, she continued. The stock rose 2.15.
If you would like to learn more about BBY, click on this link:
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Best Buy pops on earnings; CEO says shoppers showing ‘recessionary behaviors’.
Gold futures settled lower for a 4th session in a row. The stronger $, as well as higher Treasury yields, pressured gold prices. Prices for the most-active contract marked their lowest finish since Mar 21. Gold for Jun fell $20 (1.1%) to settle at $1943 an ounce.
Gold futures down 4 sessions in a row
Oil futures finished lower for the first time in 4 sessions after a top Russian official played down the prospect of additional production cuts when OPEC+ meets early next month. Crude prices were lifted earlier this week, with support tied in part to remarks by Saudi Arabia’s top energy official that were taken as a signal that OPEC+ could move to further cut output at their next meeting. West Texas Intermediate crude for Jul fell $2.51 (3.4%) to settle at $71.83 a barrel. Jul Brent crude, the global benchmark, lost $2.10 (2.7%) at $76.26 a barrel. Aug Brent, the most actively traded contract, fell $2.05 (2.6%) to $76.18 a barrel. Russian Deputy Prime Minister Alexander Novak told the Izvestia newspaper that he didn't expect any additional measure to be announced when OPEC+ meets on Jun 4. OPEC+ countries in early Apr announced around 1.15M barrels a day in production cuts that took effect at the beginning of this month, while Russia pledged to continue cuts of 500K barrels a day thru year-end. Novak said he didn't think there would be any “new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries due to the fact that we saw the slow pace of global economic recovery.” Oil prices softened after the reported remarks & were also pressured as US leaders left “many unresolved issues with the debt ceiling.”
Oil ends lower as Russia plays down prospect for additional OPEC+ production cuts
Biden & lawmakers are
edging closer to a deal on the debt ceiling. There are reports that the 2 sides are just
$70B apart on discretionary spending. There is 1 long bill which could take days to
write, read & vote on. The guys are trying to write a slimmed-down agreement with a few key
numbers. Negotiators will hammer out top line numbers for
discretionary spending, but lawmakers will hammer out the fine details in the
months ahead. Bottom line, there is hope for a deal at the last minute. Traders are encouraged & keeping fingers crossed.
Dow Jones Industrials
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