Earnings US Futures on Debt Limitation Deal; Dollar Slips: Market Turn

(Bloomberg) — U.S. stock futures contributed to Friday’s strong rally on Wall Street, while stocks in Europe posted more modest gains amid cautious optimism that politicians are approaching a debt ceiling to avoid a catastrophic U.S. default.

Most read from Bloomberg

The dollar, which benefited from regulatory lending cap turmoil, weakened against major peers. Liquidity will be thin on Monday, with US and UK markets closed for national holidays. Treasury futures fell in the absence of cash trading.

President Joe Biden and House Speaker Kevin McCarthy expressed confidence that their preliminary agreement will get through Congress. But assuming lawmakers seal the deal before the U.S. government runs out of money in about a week, traders still have a lot to contend with — from the prospect of another rate hike by the Federal Reserve to a likely deluge of bond issuance by the US government. US Treasury Department.

“The obvious positive interpretation is that negative tail risk is almost taken off the table,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “With debt ceiling distractions fading into the background, investors can now turn their attention back to underlying fundamentals. One concern, however, is that the fundamental picture remains precarious.”

Contracts on the S&P 500 were up about 0.4%, while those on the Nasdaq 100 were up about 0.5%. The Stoxx Europe 600 index climbed less than 0.2%. A measure of Asian stocks rose 0.4%. Chinese stocks traded in Hong Kong erased an initial burst higher. They are heading for a bear market as the economic recovery falters, geopolitical tensions worsen and a weaker yuan keeps investors away.

Story continues

Meanwhile, the Turkish lira weakened after Recep Tayyip Erdogan won a presidential election on Sunday, extending his time as the country’s longest-serving leader and investors watching for signs that he will begin to relax the state’s tight grip on markets.

Gold remained flat on declining port demand while oil and Bitcoin rose, reflecting a modestly exuberant tone.

‘Uncertainty remains’

The deal struck by Biden and McCarthy is running against time, as June 5 is the date Treasury Secretary Janet Yellen has said the money will run out. There’s enough in the deal that Democrats and Republicans won’t like.

“Uncertainty remains about the duration and severity of the ongoing earnings recession, and conversely, liquidity tightening could worsen in the near term due to the government’s need to address its debt issuance backlog Suzuki said. “While markets managed to avert an immediate crisis, the coast is far from clear.”

The interest-sensitive two-year Treasury bond drifted Friday as traders pondered how a debt deal could play a role in the Fed’s path forward on interest rates. Two-year rates hovered around 4.65% after a consumer spending report showed that the Fed still has more work to do to get inflation back towards its target.

“Markets will face liquidity issues 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 mention, the aggressive price review of the Fed path we saw last week could potentially get firmer if we get a hot jobs print this week.”

Main events this week:

• American Memorial Day holiday. UK and some European markets are also closed on Monday for public holidays

• Eurozone economic confidence, consumer confidence, Tuesday

• US Consumer Confidence, Tuesday

• Thomas Barkin, president of the Richmond Fed, interviewed by NABE as part of its series of webinars on monetary policy, Tuesday

• China manufacturing PMI, non-manufacturing PMI, Wednesday

• US job openings, Wednesday

• Fed releases Beige Book economic research on Wednesday

• Philadelphia Fed President Patrick Harker has a fireside talk on global macroeconomics and monetary conditions on Wednesday

• Boston Fed President Susan Collins and Fed Governor Michelle Bowman speak in Boston on Wednesday.

• ECB publishes financial stability assessment, Wednesday

• China Caixin manufacturing PMI, Thursday

• Eurozone HCOB Eurozone Manufacturing PMI, CPI, Unemployment, Thursday

• US Construction Spending, First Jobless Claims, ISM Manufacturing, Light Vehicle Sales, Thursday

• ECB spending reports May 3-4 monetary policy meeting. ECB President Christine Lagarde speaks at the German Savings Bank Conference on Thursday

• Philadelphia Fed President Patrick Harker speaks about economic outlook during NABE’s webinar, Thursday

• US unemployment, nonfarm payrolls, Friday

Some of the major moves in markets:

Shares

• The Stoxx Europe 600 was up 0.2% from 8:16am London time

• S&P 500 futures up 0.4%

• Nasdaq 100 futures up 0.5%

• Futures on the Dow Jones Industrial Average rose 0.4%

• The MSCI Asia Pacific Index rose 0.4%

• The MSCI Emerging Markets Index changed little

Currencies

• The Bloomberg Dollar Spot Index had changed little

• The euro rose 0.1% to $1.0734

• The Japanese yen rose 0.1% to 140.40 per dollar

• The offshore yuan fell 0.1% to 7.0817 per dollar

• The British pound rose 0.1% to $1.2360

Cryptocurrencies

• Bitcoin rose 1.4% to $27,948.05

• Ether rose 2.6% to $1,901.79

Bonds

Raw materials

This story was created with the help of Bloomberg Automation.

—With help from Isabelle Lee, Winnie Hsu and Tassia Sipahutar.

Most read from Bloomberg Businessweek

©2023 Bloomberg LP