Chinese balloon, debt ceiling and jobs: What investors are expecting from Biden's State of the Union speech

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By Nicole Goodkind • Tuesday, February 7

Good morning. Here's what's in today's newsletter: Chinese balloon, debt ceiling, and jobs: What investors are expecting from Biden's State of the Union speech. Plus, what Wall Street is watching today.

US stock futures are struggling for direction. European markets were generally higher, while Asian indexes closed mostly with gains, although Australian stocks fell after the central bank hiked rates and warned of more to come.

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What's happening now in markets:

▼ Dow Futures 33,906.00 (-0.08%)

▲ S&P 500 Futures 4,128.00 (+0.11%)

▲ NASDAQ Futures 12,558.00 (+0.34%)

▲ 10 Year Treasury 3.632%

▲ Gold $1,884.40 (+0.26%)

▲ WTI Crude Oil $75.32 (+1.63%)

▲ Bitcoin $22,990.00 (+0.91%)

MARKET DATA AS OF 7:40 AM ET

MARKET WATCH

What investors are expecting from Biden's SOTU speech

President Joe Biden is set to deliver his annual State of the Union Address on Tuesday at 9 p.m. ET in front of a newly fragmented Congress and to Americans confused by positive economic signs, a dismal earnings season and ongoing recession predictions.

Wall Street will also be watching closely for clues about the ongoing debt ceiling debate, tax policy, foreign relations and more. The S&P 500 is currently up more than 7% for 2023 and the Nasdaq Composite has risen for five weeks straight — its best streak since November 2021.

Both the Dow and S&P 500 jumped after Biden's previous State of the Union speeches, but a bearish message from Biden could send markets on a downward path.

Here's what investors are listening for this time around:

The resilient economy: Biden is expected to use his speech to highlight the strength of the US economy and his efforts to improve infrastructure, create jobs and fight high prices.

Last week's jobs report showed that the US unemployment rate dropped to its lowest level in more than 53 years. "Jobs are up, wages are up, inflation is down, and Covid no longer controls our lives," Biden told the Democratic National Committee on Friday.

The president will work hard to sell his message: Only about a quarter of US adults say things in the country are headed in the right direction, according to a new poll by The Associated Press-NORC Center for Public Affairs Research. At the same time, only 24% of respondents called the national economy good and 76% called it poor.

The debt ceiling: Biden is expected to spend a good portion of his time on Tuesday addressing the ongoing fight between Democrats and Republicans in Congress to agree on a new debt ceiling.

The president will insist in his speech that raising the debt limit is not negotiable and should not be used as a "bargaining chip" by lawmakers, his top economic adviser Brian Deese told reporters on Monday. Biden will warn that further debate around raising the ceiling could create economic consequences that are "quite severe," leading foreign adversaries to claim that the "full faith and credit" of the US has been diminished, said Deese.

Corporate stock buybacks: Biden will call for quadrupling the tax on corporate stock buybacks, the White House said on Monday.

The new proposal comes as the Biden administration has been speaking out against oil and gas companies that are using the windfall from record profits to award shareholders through buybacks instead of boosting production.

Biden has singled out Chevron in particular for its recent $75 billion share buyback announcement as gas prices soar and Americans feel the pain at the pump.

Chevron CEO Mike Wirth said last week in an interview on CNBC that the company is doing "exactly what the White House is calling for" and investing in more oil production.

US-China relations: Investors are fretting over Washington's tumultuous relationship with Beijing after a suspected Chinese surveillance balloon flying over US territory thwarted months of planning and negotiations between Washington and Beijing.

Republicans have criticized Biden for his relations with China, claiming he should be more aggressive on trade and technology issues. On Tuesday evening the president will have to strike a careful stance of being tough on China while preserving a working relationship with Beijing on economic and climate change issues.

VOICES

Bank of America is preparing for possible US debt default

"We have to be prepared for that, not only in this country but in other countries around the world. You hope it doesn't happen, but hope is not a strategy — so you prepare for it."

BRIAN MOYNIHAN, CEO, BANK OF AMERICA

Read more from CNN.

NEWS FLASH

Recession, Binance and Dell: What investors are watching today

▸ Treasury Secretary Janet Yellen said the probability of a recession this year is low as she touted job growth and low unemployment during an appearance on ABC's "Good Morning America."

"You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in 50 years," Yellen said. Friday's jobs report showed that the US economy added a whopping 517,000 jobs in January, according to the Bureau of Labor Statistics. The unemployment rate ticked down a tenth of a percentage point to 3.4% — the lowest jobless rate since May 1969.

▸ Binance, the world's largest crypto exchange, said it would temporarily halt transfers of US dollars starting Wednesday.

"Only a small proportion of our users will be impacted by this and we are working hard to restart the service as soon as possible," the company tweeted Monday. "All other methods of buying and selling crypto remain unaffected."

The suspension comes at an awkward time for crypto companies, and especially for centralized exchanges like Binance, which in November briefly considered a bailout of its rival FTX. That platform, which was in the midst of a liquitdity crisis, ultimately filed for bankruptcy and is now at the center of a massive federal fraud investigation.

▸ Dell plans to lay off roughly 5% of its workforce, the company said in a regulatory filing Monday, in the latest example of tech companies cutting costs in an uncertain economic climate.

Dell has about 133,000 employees, the company told CNN. At that level, the 5% cut would represent more than 6,500 employees.

The computing giant cited the "challenging global economic environment" for the cuts.

The move comes as layoffs continue to spread throughout the tech industry. Amazon, Microsoft, Google and others have each announced plans to cut thousands of workers as the companies adapt to shifting pandemic demand and fears of a looming recession.

Dell has also been grappling with reduced demand for personal computers.

UP NEXT

Earnings from KKR, DuPont, Royal Caribbean and Hertz before the bell.

Earnings from Chipotle, Illumina and Yum after the close.

▸ Plus: Federal Reserve Chair Jerome Powell is expected to speak before the Economic Club of Washington on Tuesday at 12 p.m. ET.

▸ US President Joe Biden delivers his State of the Union address at 9 p.m. ET.

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WHAT WE'RE READING AND WATCHING

▸ FTX to politicians: Give us back our donations or we'll sue (CNN Business)

▸ The risk in being bearish now (Fisher Investments)

▸ Google unveils its ChatGPT rival (CNN Business)

▸ Companies respond to incentives. A lot (Axios)
▸ Bed Bath & Beyond tries to raise $1B to avoid bankruptcy (CNN Business)

▸ We've been fighting over gas stoves for decades (Vox)

FINAL WORD

European diesel prices fall even as Russian ban kicks in

Europe's ban on Russian diesel arrived this week without inflicting more pain on the region's economy.

Although the European Union cut off its biggest supplier, diesel futures prices in the bloc fell 1.6% on Monday, amounting to a 20% loss over the past two weeks as demand in the region has waned, and efforts by countries to stockpile ahead of the ban have paid off, writes my colleague Anna Cooban.

The price drop will be met with relief by millions of the continent's truckers, drivers and businesses that rely on diesel. About 96% of trucks, 91% of vans and 42% of passenger cars in the European Union run on the fuel, according to the European Automobile Manufacturers' Association.

"The expectation was that, when the ban came in, diesel supply into Europe would tighten but, actually, that's currently not materializing," Mark Williams, a research director at consultancy Wood Mackenzie, told CNN.

The diesel ban comes two months after the bloc placed an embargo on seaborne crude oil imports from Russia, as part of a package of sanctions against Moscow for its invasion of Ukraine.

Russia accounted for 29% of the region's total diesel imports last year, data from Rystad Energy shows. Countries have prepared for the latest ban by ramping up imports of Moscow's diesel in recent months. Europe's imports were up nearly 19% in the fourth quarter of 2022 compared with the same period the previous year, according to energy data provider Vortexa.