US equity futures rose while Treasury yields and a gauge of dollar strength were little changed after President Joe Biden and House Speaker Kevin McCarthy said they had a productive talk on the debt ceiling.
Oil also rose on improved risk appetite while gold’s allure as a haven waned, pushing the precious metal toward the lowest level since the end of March. Jitters struck stock indexes in Asia, with benchmarks in Hong Kong and Tokyo erasing earlier gains.
While Biden said he and McCarthy agreed that default was off the table, investors are on tenterhooks with the clock ticking to June 1, when Treasury Secretary Janet Yellen has advised her department may run out of cash.
Any agreement would have to be approved by Congress before then and in the meantime investors have jacked up the premium they demand to hold US paper that’s most at risk. The cost of insuring the nation’s sovereign debt against default with derivatives has also climbed.
Contracts for the S&P 500 and the Nasdaq 100 increased about 0.2% and Euro Stoxx 50 futures rose marginally. Bitcoin ticked higher for the fourth time in five days.
“If the US defaulted on its debt, we would see an immediate plunge towards bear market territory and a month-long delay in payments that would deliver a big hit to GDP,” Ed Moya, senior market analyst at Oanda, wrote in a note. “With stocks so close to the upper boundaries of the trading range that has been in place since November, it will seem impossible to break out higher before we get a debt deal done.”
Yields on policy sensitive two-year Treasuries edged up less than one basis point to 4.32% after short-term rates rose Monday. Australian and New Zealand government bond yields followed the moves in Treasuries.
“We have been of the view for a while that fixed income is a great place to be,” Pierre Chartres, fixed income director at M&G Investments, said on Bloomberg Television. “The yields that you’re getting are now very attractive.”
The optimism that emerged from the debt talks also pushed yield premiums on Asia ex-Japan investment-grade dollar bonds lower as the spreads set for the tightest in more than two months.
The moves Tuesday followed fluctuating fortunes in US markets on Monday, when the S&P 500 drifted between gains and losses before closing flat. The tech-heavy Nasdaq 100 advanced 0.3%, though chipmakers were under pressure after China said products by Micron Technology Inc. failed a cybersecurity review.
In Asia, concern is growing about China’s tepid post-pandemic recovery, which is having a negative impact on key commodity prices such as iron ore and copper. Both have both tumbled in recent trading days.
Signs of a geopolitical thaw between the regional powerhouse and the US helped lift Hong Kong stocks more than 1% on Monday after Biden hinted about improving relations with Beijing. The rally fizzled on Tuesday.
Adani Group shares rallied, extending gains spurred by an Indian court panel’s report that found no conclusive evidence of stock-price manipulation as alleged by US short seller Hindenburg Research.
Meanwhile, the outlook for the Federal Reserve’s rate path is also on the minds of investors. St. Louis Fed President James Bullard said he’s thinking of two more rate hikes this year, while Minneapolis Fed President Neel Kashkari said if the US central bank pauses next month it should signal tightening isn’t over.
Key events this week:
- Eurozone S&P Global Eurozone Manufacturing & Services PMI, Tuesday
- US new home sales, Tuesday
- Dallas Fed President Lorie Logan speaks, Tuesday
- Fed issues minutes of May 2-3 policy meeting, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US initial jobless claims, GDP, Thursday
- Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
- Tokyo CPI, Friday
- US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.2% as of 1:05 p.m. Tokyo time. The S&P 500 was steady
- Nasdaq 100 futures rose 0.2%. The Nasdaq 100 rose 0.3%
- Euro Stoxx 50 futures were little changed
- Japan’s Topix index fell 0.6%
- Hong Kong’s Hang Seng Index fell 0.6%
- China’s Shanghai Composite Index fell 0.6%
- Australia’s S&P/ASX 200 Index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0807
- The Japanese yen was little changed at 138.57 per dollar
- The offshore yuan fell 0.2% to 7.0604 per dollar
- The Australian dollar was little changed at $0.6654
Cryptocurrencies
- Bitcoin rose 2% to $27,425.21
- Ether rose 2.6% to $1,866.01
Bonds
- The yield on 10-year Treasuries was little changed at 3.71%
- Japan’s 10-year yield advanced one basis point to 0.39%
- Australia’s 10-year yield advanced five basis points to 3.64%
Commodities
- West Texas Intermediate crude rose 0.4% to $72.32 a barrel
- Spot gold fell 0.5% to $1 962.95 an ounce
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