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Main U.S. indexes red: S&P 500 off ~0.5%
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All S&P 500 sectors decline: real estate weakest group
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Euro STOXX 600 index off ~0.5%
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Dollar, crude edge up; gold ~flat; bitcoin slips
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U.S. 10-Year Treasury yield ~flat at ~3.52%
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AEROSPACE AND DEFENCE IN EUROPE AT 3-YEAR PEAK, NOW WHAT? (0933 EST/1433 GMT)
Aerospace and defence is the only industry in Europe that still hasn't recovered entirely from the COVID-19 stock market damage, but its dramatic outperformance since the invasion of Ukraine by Russia has helped speed things up.
The sector's index has risen 19% in the past year helped by expectations of fatter defence budgets and is now hovering at its highest level in almost 3 years, just a couple of percentage points away from pre-pandemic levels.
With the milestone within reach, analysts are wondering whether there is still any upside left given the sharp move. In the same period the pan-European STOXX 600 equity benchmark has lost around 4%.
Exane is constructive but believes things may get trickier.
"Investing in A&D in 2023 is a more complex proposition," it said, although it still sees strong value across the sector, singling out France's Thales and Safran along with Germany's Rheinmetall as top picks.
The French bank said the momentum still favoured aftermarket names with Safran "at the top". "We see the plans for c.20% aftermarket growth in the sector as conservative given the pricing tailwind and catch-up in airline's spending."
Bernstein too remains positive on both commercial aerospace and defense, although it cautioned earlier this month that any repeat of the strong stock trends seen last year will depend on the upside potential in 2024 budgets.
NOT YET THE TIME TO FRET ABOUT DEBT CEILING, BUT RISKS LOOM (0920 EST/1420 GMT)
The United States hit its debt ceiling last week, forcing the Treasury to launch extraordinary cash management measures that can likely prevent a debt default until early June.
Most estimates put the deadline to raise the debt ceiling into the summer before the government is unable to make payments on Social Security, Medicare, military salaries and interest or principal on debt.
The extraordinary measures and the April tax receipts should allow the Treasury to finance operations until the summer, said analysts at Societe Generale in a note, adding that weak tax revenues, however, could pull the "X-date" forward to June.
The debt ceiling debate, nevertheless, has begun to heat up, as a divided Congress and growing risks of political brinkmanship bring the issue into spotlight.
"We do not see major economic risks, but a technical default and the approach of the X-date could be disruptive for the markets," added the Societe Generale analysts in a note.
Investors are demanding higher yields on some Treasury bills, as signs of worry start to show in financial markets.
"If investor confidence becomes sufficiently shaken, reduced demand could lead to higher borrowing costs not just for the government, but for corporations and individuals too, since Treasury yields often act as the basis from which many other bonds price," according to strategists at Glenmede.
In 2011, political gridlock in Washington over the debt ceiling sparked a stock sell-off and took the U.S. to the brink of default.
Congress becoming mired in an argument on whether or not to raise the country's debt ceiling would hurt the U.S. economy, said Jonathan Lavine, co-managing partner at private equity firm Bain Capital.
CHIP INDEX FLASHES BULLISH LOOK (0900 EST/1400 GMT)
Chip stocks are off to a strong start to the year. The Philadelphia SE Semiconductor index is up 16% so far in January. On Monday, it ended at a five month high.
With this, the index appears to have a constructive chart pattern in the works:
After losing nearly half its value from its early 2022 record intraday high into its October intraday low, an inverse head & shoulders pattern, also called a head & shoulders bottom, appears to be completing, suggesting the downtrend is reversing.
The index, which ended Monday at about 2,935, is breaking above the pattern's neckline at around 2,930, on a weekly basis.
It now remains to be seen if bulls can clearly take control of the trend, leading to a strong upward thrust. The pattern projection can suggest an advance to around 3,870, which could see the index near its 4,068 record high.
A lack of upside momentum as the neckline is taken out, ultimately leading to a break of the right shoulder's December low, at 2,445, can suggest the pattern has failed.
Meanwhile, of note, since around the time the SOX hit its October lows, equipment makers have sharply outperformed chip makers:
This turn came just several months after President Biden signed the Chips Act, which seeks to bolster the U.S. semiconductor supply chain and promote research and development.
More recently, over the past several weeks, chipmakers are trying to re-assert themselves. Nvidia and Synaptics are the top performing SOX stocks so far this year. However, it remains to be seen if the ratio can reclaim its descending 50-day moving average.
Separately, chip stocks rose on Monday after Barclays provided upbeat commentary on the sector after what it says was the worst correction since the tech bubble of the late 1990s.
Last week, Bernstein stated confidence in chipmakers which have significantly reduced their earnings forecasts.
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