Markets slide after GOP negotiators halt debt ceiling talks

Dow dropped 109, decliners over advancers 3-2 & NAZ was off 30.  The MLP index hardly budged in the 226s & the REIT index was about even in the 359s.  Junk bond funds were mixed & Treasuries continued to be sold.  Oil was off chump change in the 71s & gold recovered 19 to 1979 (more below).

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High-stakes talks over raising the debit limit abruptly came to a halt today after Rep negotiators walked out of the room and blamed the White House for holding up discussions.  “Until people are willing to have reasonable conversations about how you can actually move forward and do the right thing, then we’re not gonna sit here and talk to ourselves,” Rep Garret Graves told reporters.  “We decided to press pause because it’s just not productive,” he added. Graves said he did not know if talks would resume this weekend.  “There are real differences between the parties on budget issues and talks will be difficult,” a White House spokesperson said.  “The President’s team is working hard towards a reasonable bipartisan solution that can pass the House and the Senate.”  Financial markets dipped on the news, which came after a positive week of talks that appeared to signal a deal was close.  Yet as more details of a potential deal have come into focus this week, opposition to any compromise has grown among blocs of both conservative Reps & progressive Dems in Congress.

Republicans walk out of debt ceiling talks, say White House isn’t being ‘reasonable’

Federal Reserve Chair Jerome Powell said that stresses in the banking sector could mean that interest rates won't have to be as high to control inflation.  The central bank leader noted that Fed initiatives used to deal with problems at mid-sized banks have mostly halted worst-case scenarios from transpiring.  But he noted that the problems at Silicon Valley Bank & others could still reverberate through the economy.  “The financial stability tools helped to calm conditions in the banking sector. Developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation,” he said as part of a panel on monetary policy.  “So as a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals,” he added.  “Of course, the extent of that is highly uncertain.”  Powell spoke with markets mostly expecting the Fed at its Jun meeting to take a break from the series of rate hikes it began in Mar 2022.  However, pricing has been volatile as Fed officials weigh the impact that policy has had & will have on inflation that in the summer of last year was running at a 41-year high.  On balance, Powell said inflation is still too high.  “Many people are currently experiencing high inflation, for the first time in their lives. It’s not a headline to say that they really don’t like it,” he said.  “We think that failure to get inflation down would, would not only prolong the pain but also increase ultimately the social costs of getting back to price stability, causing even greater harm to families and businesses, and we aim to avoid that by remaining steadfast in pursuit of our goals,” he added.  Powell characterized current Fed policy as “restrictive” & said future decisions would be data-dependent as opposed to being a preset course.  The Federal Open Market Committee has raised its benchmark borrowing rate to a target of 5%-5.25% from near zero where it had sat since the early days of the Covid pandemic.  Officials have stressed that rate hikes operate with a lag of a year or more, so the policy moves have not completely circulated thru the economy.  “We haven’t made any decisions about the extent to which additional policy funding will be appropriate. But given how far we’ve come, as I noted, we can afford to look at the data and the evolving outlook,” Powell continued.

Fed Chair Powell says rates may not have to rise as much as expected to curb inflation

Foot locker (FL) after a worse than expected consumer slowdown led to a double-digit sales drop, prompting the company to slash its outlook just 2 months after introducing it.  Following a string of better than expected earnings from major retailer this week, this poor report could signal trouble ahead for other names in the sector, as a range of companies report earnings over the next few weeks.  FL missed on both the top & bottom lines & said it had to aggressively promote merchandise to clear steep inventory levels & convince shoppers to use their discretionary $s on shoes & clothes.  EPS was 38¢, compared with roughly $1.37 a year earlier.  Sales dropped to $1.9B, down 11.4% from $2.2B a year earlier.  FL expects sales to be down 6.5% to 8% for the year, compared to a prior range of down 3.5-5.5%.  It expects comparable sales to fall 7.5-9%, compared to a prior range of down 3.5-5.5%.  The company expects non-GAAP EPS to be $2.00-2.25, compared to its previous outlook of $3.35-3.65.  It anticipates gross margins will be 28.6-28.8%, compared to a prior range of 30.8-31%.  “Consumer demand, you know, has softened since investor day [earlier this year] and you know, signals are that we think that pressure will continue,” CEO Mary Dillon said.  “As we came into this year, though, we knew there was some pressure because of the lower tax refund. We had hoped that things would snap back post that and what we saw is that it really hasn’t to the extent that we were forecasting or hoping for.”  The stock tumbled 11.46 (28%).
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Foot Locker’s 28% plunge, guidance cut may signal trouble ahead for other retailers

Gold futures climbed, but marked their biggest weekly percentage loss since early Feb.  The precious metal was dragged below the psychologically important $2000 level this week due to optimism surrounding a US debt deal, while markets also ramped up bets of a Federal Reserve interest rate hike in Jun.  Gold for Jun settled at $1981 an ounce, up $21 (1.1%) for the session.  Prices for the most-active contract lost 1.9% for the week, the largest weekly loss since Feb. 3.

Gold futures log biggest weekly loss in over 3 months

Oil futures finished lower as optimism surrounding a US debt ceiling faded, but prices still notched a gain of more than 2% for the week.  Natural-gas futures, meanwhile, ended sharply higher for the week, buoyed by prospects for tighter supplies.  Crude prices were having a great week as the US economic outlook dramatically improved as lawmakers seem likely to reach a deal on the debt ceiling.  However, debt ceiling optimism quickly disappeared & that sent oil prices sharply lower.  Jun West Texas Intermediate crude fell 3¢ to settle at $71.55 a barrel, up 2.2% for the week.  Jun natural gas shed a penny to settle at $2.59 per M British thermal units, posting a weekly rise of 14.1%.   collapsed

Oil prices mark first weekly gain in 5 weeks; natural-gas futures end the week 14% higher

Dow fell a relatively modest 200 on the news about that debt ceiling talks collapsed.  However, dreary news on retailer earnings is a reminder that the economy seems to be in a recession, if only mild at this stage.  For the week, Dow finished down 126 (still stuck in its sideways trend).

Dow Jones Industrials