Here are five things you must know for Monday, May 23:
1. -- Stock Futures Higher, Dollar Slides As Markets Debate 'Fed Put'
U.S. equity futures edged higher Monday, while the dollar extended modest declines against its global peers and Treasury yields stabilized, as markets looked to a cautious start to a crucial week of Fed rate signaling following one of the worst runs for domestic stocks in two decades.
Growth and inflation bets continue to dominate investor sentiment, however, as many of the underlying forces driving near-term inflation, such as Russia's war on Ukraine, China's Covid crisis and disrupted global supply chains, persist while the Federal Reserve vows to snuff out the fastest acceleration in consumer prices in more than four decades with aggressive rate hikes.
The impact on stocks has been clear: the S&P 500 suffered through another five-day loss last week, taking its run of consecutive weekly declines to eight, the longest losing streak since 2001. The Dow, meanwhile, is also on an eight-week run of declines that the market hasn't seen in nearly a century.
Still, the Atlanta Fed's GDPNow forecasting tool pegs current U.S. growth at 2.4%, a tally that would indicate a sharp rebound from last quarter's contraction and suggest that a solid economy underpins the domestic stock market weakness.
That leaves open the question of a so-called Fed put, a reference to an investing technique that limits downside losses: if growth remains consistent, yet stocks continue to slump, the central bank may pause its current rate-hike cycle to allow equity valuations to recover.
Little evidence of that so-called 'Fed put' can be found in the CME Group's FedWatch tool, however, as rate traders continue to bet on a 96.6% chance of a 50 basis point rate hike next month, while placing a 91.1% probability on a similar-sized move in July.
In overseas markets, stocks were briefly rattled by comments from President Joe Biden that the U.S. would be prepared to use force to protect Taiwan from any invasion by China, a a remark that overshadowed his unveiling of a new 'Indo-Pacific Economic Framework' in Tokyo.
The region-wide MSCI ex-Japan index was marked 0.12% lower heading into the close of trading, while Europe's Stoxx 600 rose 0.27% despite unusually direct comments from European Central Bank President Christine Lagarde that indicated rate hikes are likely to begin later this summer.
In the U.S., benchmark 10-year Treasury bond yields held at 2.815% while and the dollar index fell 0.9% against a basket of six global currencies to 102.246 in early European trading.
On Wall Street, futures tied to the Dow Jones Industrial Average indicating a 160 point opening bell advance while those linked the S&P 500, which is down 18.14% for the year, are priced for a 22 point move to the upside. Futures linked to the Nasdaq are looking at 55 point opening bell gain.
2. -- Week Ahead: Fed's Inflation Fight In Focus, Earnings Near Close
The Federal Reserve and its inflation fight will once again take center-stage this week as investors look to minutes of the central bank's April policy meeting for any suggestion of a desire to move faster on rate hikes as consumer prices continue to accelerate.
Fed Chairman Jerome Powell has attempted to take the prospect of a 75 basis point rate hike off the take for both the June and July meetings, but traders are still pricing in at least a 10% chance of such a move before the end of the summer.
Minutes of the April meeting, which will be published Wednesday at 2:00 pm Eastern, could provide guide to that view, particularly if Friday's reading of the Fed's preferred inflation gauge, the core PCE Price index, comes in hotter than the market's 0.3% forecast. The data will arrive at 8:30 am Eastern time.
A light week of earnings will be highlighted by an April quarter update from Chipmaker Nvidia (NVDA) - Get NVIDIA Corporation Report after the close of trading on Wednesday, with discount retailers Dollar General (DG) - Get Dollar General Corporation Report and Dollar Tree (DLTR) - Get Dollar Tree Inc. Report set to publish before the start of trading on Thursday and Costco (COST) - Get Costco Wholesale Corporation Report reporting after the close.
The Commerce Department will also publish its second look at first quarter GDP on Thursday at 8:30 am Eastern, with economists looking for a modest uptick from its initial estimate of a 1.4% contraction.
3. -- VMware Shares Surge As Broadcom Eyes Potential $50 Billion Takeover
VMware (VMW) - Get VMware, Inc. Report shares surged higher in pre-market trading amid reports that the former cloud computing division of Dell Technologies (DELL) - Get Dell Technologies Inc. Class C Report is a takeover target of chipmaker Broadcom (AVGO) - Get Broadcom Inc. Report.
Bloomberg, Reuters and the Wall Street Journal have each reported the Broadcom, which is looking to broaden its business interest from its chipmaking base, is in early talks with VMware for a deal that could be valued at as much as $50 billion. VMware was spun-off from Dell Technologies in 2019 but is still under the 40% control of billionaire tech mogul Michael Dell.
VMware shares neared a five-year low last week after the U.S. Cybersecurity and Infrastructure Security Agency ordered federal agencies to update or remove its products following a discovery that hackers had found a back-door vulnerability that could put government computer systems at risk.
VMware shares were marked 19.14% higher in premarket trading to indicate an opening bell price of $14.03 each. Broadcom, meanwhile, fell 2.4% to $530 each and Dell gained 1.4% to indicate a $40.60 open.
4. -- Apple Looking To Expand Production Outside of China - Report
Apple (AAPL) - Get Apple Inc. Report shares bumped higher in pre-market trading following a report that suggested the world's biggest tech company is looking to expand its manufacturing base outside of China.
The Wall Street Journal reported Monday that Apple, which makes by some estimates around 90$ of its hardware products inside China, is looking to expand manufacturing hubs in India and Vietnam in order to both diversify its supply-chain and counter the impact of China's draconian Covid lockdowns.
Last month, Apple CEO Tim Cook said Covid and supply chain disruptions around what he called the "Shanghai corridor", as well as Russia's war in Ukraine, would clip between $4 billion and $8 billion from current quarter revenues, marring an otherwise impressive second quarter earnings beat.
Apple shares were marked 0.5% higher in premarket trading to indicate an opening bell price of $138.20 each, a move that would still leave the stock down more than 24.4% for the year.
5. -- Zoom Edges Higher Ahead Of Q1 Earnings
Zoom Video Communications (ZM) - Get Zoom Video Communications Inc. Report shares edged higher in pre-market trading ahead of the video conferencing specialists first quarter earnings after the close of trading.
Zoom, one of the star outperformers of the pandemic that rose to carry a market value that exceeded Exxon Mobile (XOM) - Get Exxon Mobil Corporation Report at its October 2020 peak, has struggled to build on that momentum as workers headed back to the office last year, larger competitors such as Microsoft (MSFT) - Get Microsoft Corporation Report and Cisco (CSCO) - Get Cisco Systems Inc. Report upped their game and the group whiffed on an attempted $15 billion takeover bid of call center software group Five9 (FIVN) - Get Five9 Inc. Report.
Analysts are looking for Zoom to publish a 12% increase in first quarter revenues, which are forecast at $1.07 billion, but see rising costs eat into its bottom line, which is expected to fall 34% to 87 cents per share.
Zoom shares were marked 0.29% higher in premarket trading to indicate an opening bell price of $90.00 each.