U.S. stock futures stalled as debt-ceiling discussions loom

What’s driving markets

The meagre moves in equity index futures comes ahead of talks on the U.S. government debt-ceiling later Tuesday between President Joe Biden and House Speaker Kevin McCarthy. The White House says the meeting will start at 3 p.m. Eastern.

Treasury Secretary Janet Yellen on Monday repeated June 1 as the date when her department may be unable to pay its bills in the absence of a debt-ceiling increase and McCarthy contradicted recent optimism about a deal by stating the two sides were still “far apart.”

Concerns about the impact to markets of a technical default by the U.S. has capped recent gains for stocks, which came after a better-than-expected first quarter earnings season and inflation easing to a two-year low. Consequently, the S&P 500 remains cemented within the 3,800 to 4,200 range it has inhabited for about six months.

Some analysts were skeptical of a deal occurring soon. “The negotiations will likely remain tight as Republicans ask decent [big] spending cuts to accept a debt ceiling relief, while Biden is not willing to compromise on spending into the election year,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

And given the uncertainty, many traders are choosing to keep their powder dry. Wall Street on Monday recorded its lowest volume day of the year, according to Dow Jones Market Data.

Investors should indeed favor caution, argued Stephen Innes, managing partner at SPI Asset Management.

“[S]ome investors think we are nearing a point where risk rewards could be more favourable, given the politicians historically have given in to the face of crisis. Although arguably, we could enter a very tricky period, and discussion could drag out. But again, one is playing the game of headline poker on either side of the bullish or bearish table, which keeps discretionary folks sidelined. Smart money doesn’t flip coins,” Innes wrote in a morning commentary.

Traders also will be keeping an eye out for fresh information on Tuesday concerning the health of the U.S. consumer with Home Depot
HD,
-0.66%
releasing its results and the April retail sales data published at 8:30 a.m. Eastern.

Other U.S. economic updates set for release include industrial production and capacity utilization for April at 9:15 a.m. followed at 10 a.am. by March business inventories and May home builder confidence.

There’s also a flurry of Fed officials speaking, including Cleveland Fed President Mester at 8:15 a.m.; Richmond Fed President Barkin at 10:30 a.m.; New York Fed President Williams at 12:15 a.m.; and Atlanta Fed President Bostic and Chicago Fed President Goolsbee on a panel starting at 7 p.m..