Early Morning Call: Europe indices hesitant as US debt ceiling deadlock continues

Debt ceiling talks

US president Joe Biden and House Speaker Kevin McCarthy failed again to reach an agreement on how to raise the $31.4 trillion government debt ceiling. The earliest estimated default date remains June 1, and if no deal is made by then, Treasury will no longer be able to pay all government obligations.

In the UK, public sector net borrowing posted a deficit of £24.73 billion, £4bln more than last month, its largest since March 2021.

Japan's manufacturing activity expanded for the first time since October last year. The Jibun Bank flash Japan manufacturing PMI rose to 50.8 in May. Output and new orders also returned to expansion territory for the first time since last June. Service-sector activity expanded at the strongest pace on record.

PMI in Japan was the first of a series due today, starting with France at 8.15am, and followed by Germany, eurozone, and UK data. All are forecast to see an improvement in the manufacturing sector but will remain in contraction territory.

This afternoon the market could react to US S&P global manufacturing PMI. It is forecast to fall to 50 in May from 50.2 in April.

Central banks

USD/JPY hit a six-month high on expectations that US rates will remain higher for longer. Yesterday two Federal Reserve (Fed) members hinted that there is more to come from the central bank.

Minneapolis Fed President Neel Kashkari's opinion is that the Fed may have to go "north of 6%" in order for inflation to return to the Fed's 2% target. St. Louis Fed President James Bullard pointed towards another half-point hike this year.

Tomorrow, the Reserve Bank of New Zealand (RBNZ) will decide on its interest rates. The official cash rate is expected to rise by another 25-basis points (bp) to 5.5%. If this is indeed the case, it would make the RBNZ the most hawkish bank in the world, with hikes of a total of 525 basis points, ahead of the US Fed.

Equities

On the equity market, Altice announced this morning it has raised it stake in BT Group to about 24.5%, after acquiring another 650 million shares. Altice however repeated it does not intend to make an offer for BT.

Topps Tiles posted a near 70% drop on pretax profit to £1.7 million. Revenue rose 9.3%. Topps Tiles raised its interim dividend to 1.20p per share, from 1p a year ago.

Zoom Video Communications raised its full-year (FY) forecast yesterday evening. The group now sees annual adjusted profit between $4.25 and $4.31 per share, compared with an earlier estimate of $4.11 to $4.18. Annual revenue is now forecast between $4.47Bln and $4.49Bln, higher than an earlier expectation of $4.44Bln to $4.46Bln.

Earnings came in better than expected, at $1.16 per share. Analysts anticipated 99 cents. Revenue also was marginally better than forecast at $1.10Bln. The 8% decline in online revenue was offset by the 13% revenue increase of its enterprise business segment.