(Bloomberg) — American equity futures added to Friday’s strong advance on Wall Street, while stocks in Europe posted more modest gains amid cautious optimism politicians are nearing a debt-ceiling deal to avert a catastrophic US default.
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The dollar, which has benefited from angst around the statutory borrowing limit, weakened against major peers. Liquidity is set to be thin Monday, with US and UK markets closed for national holidays. Treasury futures dipped in the absence of cash trading.
President Joe Biden and House Speaker Kevin McCarthy expressed confidence that their tentative agreement will pass through Congress. Still, assuming lawmakers seal the deal before the US government runs out of cash in about a week, traders still have much to contend with — from the prospect of another interest-rate hike from the Federal Reserve to a likely deluge of bond issuance from the US Treasury Department.
“The obvious positive interpretation is that a negative tail risk is close to being taken off the table,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “With the distraction of the debt ceiling fading into the background, investors can now refocus their attention on the underlying fundamentals. One concern, though, is that the fundamental picture remains precarious.”
Contracts on the S&P 500 climbed about 0.4%, while those on the Nasdaq 100 were up around 0.5%. The Stoxx Europe 600 index climbed less than 0.2%. A gauge of Asian shares rose 0.4%. Chinese shares traded in Hong Kong erased an initial burst higher. They’re inching toward a bear market as the economic recovery wobbles, geopolitical tensions worsen and a weaker yuan keeps investors away.
Meanwhile, Turkey’s lira weakened after Recep Tayyip Erdogan won a presidential runoff election on Sunday, extending his time as the nation’s longest-serving leader and leaving investors looking for any signs he’ll start to relax the state’s tight grip over markets.
Gold was flat on waning demand for havens as oil and Bitcoin climbed, reflecting a modestly buoyant tone.
‘Uncertainty Persists’
The agreement struck by Biden and McCarthy is running against the clock given that June 5 is the date when Treasury Secretary Janet Yellen has said cash will run out. There is plenty in the deal that Democrats and Republicans won’t like.
“Uncertainty persists regarding the duration and severity of the ongoing earnings recession, and perversely, the near-term tightening of liquidity may worsen due to the government’s need to address its debt issuance backlog,” said Suzuki. “While the markets managed to avert an immediate crisis, the coast is far from all-clear just yet.”
The rate-sensitive two-year Treasury drifted Friday as traders considered how a debt agreement could play into the Fed’s path forward on interest rates. The two-year yield hovered around 4.65% after a report on consumer spending showed the Fed still has more work to do to bring inflation back toward its target.
“Markets will have the liquidity hassles to deal with, as the Treasury will issue a deluge of bonds to restore its cash reserves,” said Charu Chanana, market strategist at Saxo Capital Markets. “Not to forget, the hawkish re-pricing of the Fed path that we have seen last week could possibly get firmer if we get a hot jobs print this week.”
Key events this week:
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US Memorial Day holiday. UK and some European markets also closed for holidays, Monday
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Eurozone economic confidence, consumer confidence, Tuesday
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US consumer confidence, Tuesday
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Richmond Fed President Thomas Barkin interviewed by NABE as part of monetary policy webinar series, Tuesday
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China manufacturing PMI, non-manufacturing PMI, Wednesday
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US job openings, Wednesday
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Fed issues Beige Book economic survey, Wednesday
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Philadelphia Fed President Patrick Harker has fireside chat on the global macro-economy and monetary conditions, Wednesday
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Boston Fed President Susan Collins and Fed Governor Michelle Bowman speak in Boston, Wednesday.
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ECB issues financial stability review, Wednesday
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China Caixin manufacturing PMI, Thursday
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Eurozone HCOB Eurozone Manufacturing PMI, CPI, unemployment, Thursday
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US construction spending, initial jobless claims, ISM Manufacturing, light vehicle sales, Thursday
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ECB issues report its May 3-4 monetary policy meeting. ECB President Christine Lagarde speaks at German savings banks conference, Thursday
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Philadelphia Fed President Patrick Harker speaks on economic outlook at NABE’s webinar, Thursday
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US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 rose 0.2% as of 8:16 a.m. London time
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S&P 500 futures rose 0.4%
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Nasdaq 100 futures rose 0.5%
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Futures on the Dow Jones Industrial Average rose 0.4%
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The MSCI Asia Pacific Index rose 0.4%
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The MSCI Emerging Markets Index was little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $1.0734
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The Japanese yen rose 0.1% to 140.40 per dollar
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The offshore yuan fell 0.1% to 7.0817 per dollar
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The British pound rose 0.1% to $1.2360
Cryptocurrencies
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Bitcoin rose 1.4% to $27,948.05
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Ether rose 2.6% to $1,901.79
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
—With assistance from Isabelle Lee, Winnie Hsu and Tassia Sipahutar.
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