(Bloomberg) — US and European equity futures were steady as investors awaited possible progress on debt-limit talks while Asian shares rose after President Joe Biden said relations with China should improve “very shortly”.
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Hong Kong stocks led gains in Asia, with the Hang Seng Index jumping more than 1%, pushed higher by technology companies. Historically cheap valuations following consecutive weekly declines added further support. The region-wide rally also saw Japanese, South Korean and mainland China stocks climb, but excluded Australian blue chips.
“I think you’re gonna see that begin to thaw very shortly,” Biden said of ties between the US and China in Sunday comments after a Group-of-Seven summit in Japan. He added that his administration was considering whether to lift sanctions on Chinese Defense Minister Li Shangfu.
Traders also remain fixated on the path for Fed’s benchmark rate, with bets for a hike in June trimmed to 25% as Jerome Powell signaled a pause. Minneapolis Fed President Neel Kashkari also said he may support a pause, Dow Jones reported.
“Market pricing is firmly back to thinking the Fed will pause,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a research note. “The US debt ceiling, and the price action in US banks, are going to dominate the narrative.”
South Korea’s Kospi gained as much as 1%, on track for its sixth daily advance. Samsung Electronics Co. and SK Hynix Inc. were among the biggest contributors to the benchmark after China said their US rival Micron Technology Inc. had failed to pass a cybersecurity review.
The South Korean won led the gains among emerging-market currencies while the offshore yuan weakened. A gauge of the dollar was little changed. Treasuries made small gains.
Debt Talks
President Biden and House Speaker Kevin McCarthy are scheduled to meet in Washington Monday following a “productive” call between the pair over the weekend. Yet one Republican negotiator is insisting on a multi-year spending limit, complicating talks even as default could come as soon as June 1.
Even though the debt limit deadline is more than a week away, the effective deadline for a deal may be much sooner. That’s because lawmakers have to pass whatever Biden and McCarthy can agree to, and that process may take several days.
McCarthy said last week that in order to meet a June 1 deadline the House would have to vote this week on any compromise plan. The Senate would take up the legislation afterward, before it goes to Biden’s desk to be signed into law.
Stocks are primed to drop if the US fails to raise the debt limit and delays government payments, according to UBS strategists. Although it’s unlikely, if the US formally defaults and delays all payments beyond principal payments for a week, the S&P 500 will fall as much as 20% toward 3,400, the team led by Jonathan Pingle said.
Meanwhile in India, shorter-maturity bonds rallied on bets a withdrawal of the nation’s highest value currency note would leave banks with surplus cash to invest.
Iron ore retreated on uncertainty about demand from China. Oil extended a two-day drop and gold edged down following a 1% gain on Friday. Bitcoin fell, remaining below $27,000.
Key events this week:
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Eurozone consumer confidence, Monday
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Fed presidents speaking are James Bullard, Raphael Bostic and Thomas Barkin, Monday
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Eurozone S&P Global Eurozone Manufacturing & Services PMI, Tuesday
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US new home sales, Tuesday
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Dallas Fed President Lorie Logan speaks, Tuesday
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Fed issues minutes of May 2-3 policy meeting, Wednesday
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Bank of England Governor Andrew Bailey speaks, Wednesday
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US initial jobless claims, GDP, Thursday
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Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
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Tokyo CPI, Friday
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US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 7:06 a.m. London time. The S&P 500 fell 0.1% Friday
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Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.2% Friday.
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Japan’s Topix rose 0.7%
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Australia’s S&P/ASX 200 fell 0.2%
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Hong Kong’s Hang Seng rose 1.4%
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The Shanghai Composite rose 0.3%
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Euro Stoxx 50 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0815
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The Japanese yen was little changed at 138.00 per dollar
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The offshore yuan fell 0.1% to 7.0345 per dollar
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The Australian dollar fell 0.2% to $0.6639
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The British pound was little changed at $1.2443
Cryptocurrencies
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Bitcoin fell 0.3% to $26,782.31
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Ether was little changed at $1,804.8
Bonds
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The yield on 10-year Treasuries was little changed at 3.67%
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Japan’s 10-year yield declined two basis points to 0.38%
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Australia’s 10-year yield was little changed at 3.59%
Commodities
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West Texas Intermediate crude fell 0.8% to $70.96 a barrel
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Spot gold fell 0.2% to $1,973.15 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth and Tassia Sipahutar.
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