Markets turned higher after days of anxiety that an impasse in Washington would push the US into an unprecedented default, spurring bets that the world’s biggest economy can also skirt an economic slump.
(Bloomberg) — Markets turned higher after days of anxiety that an impasse in Washington would push the US into an unprecedented default, spurring bets that the world’s biggest economy can also skirt an economic slump.
European stocks rose, following a rally on Wall Street, as hopes built for an eventual breakthrough in talks to raise the debt limit before coffers run dry on June 1. S&P 500 futures pointed to another day of gains for the index, and US regional lenders kept up their momentum in premarket trading, with Western Alliance Bancorp adding 2% and PacWest Bancorp up 6%.
The lighter mood reflects both the progress in Washington and some good news out of embattled US regional lenders. Bank stocks rebounded this week after Western Alliance reported an increase in deposits, easing concern that the industy will succumb to losses on bond investments and a flight by depositors. Taken together, they’re keeping hopes alive that the US will avert a recession and giving way to soft-landing bets after one of the most aggressive Fed tightening cycles in history.
“If the headwinds of banking crisis and debt ceiling recede and consumers stays reasonably resilient, the recession risk may recede,” said Roger Lee, head of UK equity strategy at Investec Bank Plc.
Wagers on a relief rally were reflected in the CBOE VIX index of equity market volatility, which fell below 17 to close at the lowest level since the start of the month. In Europe, markets in Nordic countries and Switzerland are closed for holidays Thursday.
An index of dollar strength headed for a third day of gains, while Treasuries were little changed. The rate-sensitive two-year yield traded above 4%, reflecting soft-landing bets.
President Joe Biden expressed confidence there will be no US default, and House Speaker Kevin McCarthy said reaching an agreement this week is “doable.” JPMorgan Chase & Co. chief Jamie Dimon said the US government “probably” will not default on its debt after he and other bank leaders met in Washington to discuss the debt limit.
A gauge of Asian stocks headed for its biggest gain since March, with benchmarks in Australia, Hong Kong and South Korea advancing. Japan’s Topix index climbed around 1% to set a fresh 33-year high.
Gains in Alibaba Group Holding Ltd. ahead of its earnings release spurred tech stocks higher in both Hong Kong and Japan. Chipmakers were among best performers on the Nikkei 225 on government plans to boost the country’s domestic semiconductor sector.
“In Japan we were expecting a rebound,” Anita Gupta, head of equity strategy for Emirates NBD, said in an interview with Bloomberg Television. “We think there is more to go.”
Among other individual stock moves, Take-Two Interactive Software was set for a year-high after the video-game company reported its fourth-quarter results and hinted at a release date for the next version of its popular Grand Theft Auto franchise. Burberry Group Plc shares slumped after a slowdown in the Americas overshadowed a rebound in China.
A ruling confirmed that holders of Credit Suisse Group AG’s Additional Tier 1 notes won’t be covered by credit default swaps. The sub-ranking securities were written off in March when the bank was sold to UBS Group AG.
Investor attention later turns to initial US jobless claims data, which could provide clues on what the Federal Reserve intends to do next in its monetary policy tightening campaign. Earnings due from Walmart Inc. will provide insights on the state of the economy and the American consumer.
Key events this week:
- US initial jobless claims, Conference Board leading index, existing home sales, Thursday
- Japan CPI, Friday
- ECB President Christine Lagarde participates in panel at Brazil central bank conference, Friday
- New York Fed’s John Williams speaks at monetary policy research conference in Washington; Fed Chair Jerome Powell and former chair Ben Bernanke to take part in panel discussion, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.6% as of 11:19 a.m. London time
- S&P 500 futures rose 0.2%
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.3% to $1.0810
- The Japanese yen was little changed at 137.71 per dollar
- The offshore yuan fell 0.5% to 7.0450 per dollar
- The British pound fell 0.4% to $1.2437
Cryptocurrencies
- Bitcoin rose 0.3% to $27,423.39
- Ether was little changed at $1,828.25
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.58%
- Germany’s 10-year yield advanced six basis points to 2.39%
- Britain’s 10-year yield advanced four basis points to 3.88%
Commodities
- Brent crude fell 0.8% to $76.38 a barrel
- Spot gold fell 0.2% to $1,978.26 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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