Dollar steady as US futures gain on debt limit deal
American equity futures added to Friday’s strong advance on Wall Street, while European stocks posted more modest gains amid cautious optimism politicians are nearing a debt-ceiling deal to avert a catastrophic US default.
Contracts on the S&P 500 climbed about 0,4 percent, while those on the Nasdaq 100 were up around 0,5 percent. The Stoxx Europe 600 index climbed less than 0,1 percent. Liquidity is set to be thin, with US and UK markets closed for national holidays. SBB soared more than 8 percent after the embattled landlord at the centre of Sweden’s property crisis said it may look to sell the company following a plunge in the share price.
The dollar, which has benefited from angst around the statutory borrowing limit, was steady. 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. 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.”
A gauge of Asian shares rose 0,4 percent. 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. The nation’s stocks benchmark gained.
Gold was flat on waning demand for havens as oil and Bitcoin climbed, reflecting a modestly buoyant tone.
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 percent 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.” – Bloomberg