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 were little changed, while 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.
“The risk rally could have some legs short term,” said Mohit Kumar, rates strategist at Jefferies International. “There is growing optimism that some framework on the debt ceiling agreement could be announced as soon as this Sunday. So I do not think anyone would want to be short on risky assets into the weekend.”
Treasuries fell, as bets on a resilient US economy put the timing of a Federal Reserve pivot to easier policy in question. Weekly applications for US unemployment benefits saw the biggest drop since 2021, bolstering the case for higher-for-longer policy. The rate-sensitive two-year yield rose to 4.2%.
“It might be very, very difficult for the Fed to very quickly cut rates unless something terrible happens. And at the moment, that’s not the case,” said Andres Sanchez Balcazar, head of global bonds at Pictet Asset Management SA, which is shorting rates futures.
In Washington, 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.
An index of dollar strength headed for a third day of gains. Among other currencies, Hungary’s forint dropped on the government’s threat to block more European Union aid to Ukraine.
Walmart Inc. gained in premarket trading after the retail giant lifted its annual profit forecast.
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.
Key events this week:
- 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
- S&P 500 futures were little changed as of 8:45 a.m. New York time
- Nasdaq 100 futures rose 0.1%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $1.0796
- The British pound fell 0.4% to $1.2433
- The Japanese yen fell 0.4% to 138.24 per dollar
Cryptocurrencies
- Bitcoin fell 0.2% to $27,292.88
- Ether fell 0.4% to $1,820.12
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.62%
- Germany’s 10-year yield advanced nine basis points to 2.43%
- Britain’s 10-year yield advanced eight basis points to 3.92%
Commodities
- West Texas Intermediate crude fell 0.4% to $72.53 a barrel
- Gold futures fell 0.7% to $1,989.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Naomi Tajitsu and Sujata Rao.
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