Debt ceiling progress, PCE due, OPEC+ output cut debate - what's moving markets

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Investing.com -- U.S. President Joe Biden says lawmakers are carrying out productive talks over raising the debt ceiling, but a final deal remains elusive with a possible default now only days away. Elsewhere, a gauge of inflation closely watched by the Federal Reserve is due out, while debate swirls around whether OPEC+ will slash oil production at its next meeting.

1. Debt ceiling progress, but no deal yet

The U.S. House of Representatives has adjourned for its Memorial Day recess and the Senate is not in session, but lawmakers are now on standby to return to Washington if a deal can finally be reached in the fraught debt ceiling talks.

President Biden said on Thursday that progress had been made in his ongoing negotiations with top House Republican Kevin McCarthy, adding that their advisors will continue to meet. But McCarthy stressed that no agreement has yet been secured, with both sides at an impasse over spending proposals.

Biden and McCarthy are inching closer to coming to an arrangement that would lift the $31.4 trillion borrowing limit for two years and cap expenditures on most items, according to a Reuters report citing an unnamed U.S. official.

The deal, however, is not final and would need quick approval from Congress in order for the federal government to avoid a potential default. The Treasury Department has flagged that it could run out of funds to pay off its debts as soon as June 1, an event that threatens to plunge the U.S. economy into a recession and rattle global markets.

2. Futures edge mostly lower after AI-powered rally

U.S. stock futures pointed marginally lower on Friday, as investors gauged the outlook for the debt ceiling negotiations and eyed the release of inflation data closely watched by Federal Reserve officials (see below).

At 05:23 ET (09:23 GMT), S&P 500 futures edged down by 7 points or 0.18%, Nasdaq 100 futures were widely unchanged, and the Dow futures contract dipped by 64 points or 0.20%.

Equities on Wall Street broadly rallied in the prior session after a blowout forecast from chipmaking giant Nvidia (NASDAQ:NVDA) convinced traders to increase their bets on artificial intelligence companies. The benchmark S&P 500 gained 0.88%, while the tech-heavy Nasdaq Composite jumped by 1.71%.

Elsewhere, shares in Intel (NASDAQ:INTC), which some observers have viewed as a possible laggard in the AI race, fell by 5.52% and weighed on the Dow Jones Industrial Average.

3. PCE on deck

The Fed's preferred inflation measure is due out later on Friday, adding to a batch of recent economic data that has persuaded some investors to begin to reassess their forecasts for the central bank's future interest rate path.

The Core Personal Consumption Expenditures (PCE) price index for April is expected to rise by 4.6% annually and 0.3% month-on-month, matching the March readings.

Meanwhile, the headline PCE price index is seen growing by 3.9%, cooling from 4.2% in March. Economists project that the monthly figure will increase by 0.4%, accelerating from 0.1% previously.

Fed officials have stated that they pay particularly close attention to the core figure because it removes more volatile items like energy and food.

It remains uncertain if policymakers will choose to push pause on a long-running campaign of rate hikes at its next meeting in June. On Thursday, the release of jobless claims that were lower than anticipated and an upward revision to first-quarter gross domestic product numbers spurred on bets that the Fed may instead carry on with its tightening cycle aimed at corralling elevated inflation.

4. Gold prices choppy amid debt ceiling discussions

Gold prices moved higher on Friday, recovering from a slide earlier in the session, with the yellow metal boosted by a drop in the dollar as investors nervously eyed the debt ceiling talks.

At 05:24 ET, spot gold rose by 0.59% to $1,952.26 an ounce, while gold futures expiring in June gained 0.45% to $1,952.35 per ounce.

Despite the increase, the metal still remains on course to fall for a third consecutive week. Gold has seen a sharp reversal from record highs hit in early May, as an easing in concerns over an immediate banking crisis impacted its safe-haven status.

5. Oil rises as debate surrounds possible OPEC+ output cut

Oil prices moved higher on Friday, following the previous session's weakness as Russia played down the prospect of further OPEC+ production cuts at its meeting next month.

Russian Deputy Prime Minister Alexander Novak said on Thursday he expects no new steps from the group of top producers at the June 4 meeting, undermining remarks from Saudi Energy Minister Prince Abdulaziz bin Salman earlier in the week that short-sellers should “watch out.”

By 05:25 ET, U.S. crude futures rose by 0.36% to $72.09 a barrel, while the Brent contract gained 0.22% to $76.43.

Both benchmarks were on track to post small gains this week on signs of tightening supply and improving fuel demand in the U.S., the world’s largest oil consumer.