Stocks and currencies in tight swings amid debt talks: market close

(Bloomberg) – Asian equities and U.S. stock futures traded in tight ranges in early trade as uncertainty over U.S. talks to avoid a debt default cast a shadow over markets.

Australian stocks fell while Japanese stocks were flat after the S&P 500 and Nasdaq 100 both closed lower on Friday. Futures for Hong Kong’s Hang Seng Index edged higher after the benchmark fell more than 1% on Friday.

The dollar was slightly weaker against most of its currency pairs in the Group of 10, while trading otherwise started quietly, limiting movements in most currencies to less than 0.2%.

President Joe Biden and House Speaker Kevin McCarthy are scheduled to meet in Washington over the weekend after a “productive” phone call between the two. Still, a Republican negotiator is insisting on a multi-year spending cap, complicating talks despite the possibility of a default as soon as June 1.

Traders also remain fixated on the path for Federal Reserve interest rates, with bets on a June hike trimmed to 25% as Jerome Powell signaled a pause. Minneapolis Fed President Neel Kashkari also said he might favor a pause, Dow Jones reported.

“Market prices are once again firmly convinced that the Fed will pause,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a research note. “The US debt ceiling and US bank price developments will dominate the narrative.”

Australian and New Zealand government bonds were little changed after government bonds fell on Friday.

Friday’s drop in the S&P 500 halted a two-day rally as it failed to stay above the closely watched 4,200 level. The $3.2 billion exchange-traded fund SPDR S&P Regional Banking fell nearly 2% after Treasury Secretary Janet Yellen told heads of major lenders that more mergers may be needed.

Stocks are likely to fall if the US doesn’t raise the debt limit and delay government payments. That’s the warning from a team of UBS strategists. Although unlikely, the S&P 500 will fall as much as 20% towards 3,400 if the US officially defaults and delays all payments beyond principal for a week, Jonathan Pingle’s team said.

The story goes on

Meanwhile, markets continue to be rocked by tensions between China and the US and its allies. President Biden said Sunday he expected ties with China to improve “very soon” after a row over an alleged spy balloon earlier in the year scuttled ties. The comments followed the Group of Seven leaders’ meeting in Japan, where countries agreed to step up efforts to reduce dependency on China for critical supply chains. Hours after Biden’s comments, Beijing announced a ban on Micron Technology Inc. products from key Chinese infrastructure.

Oil started the week little changed after falling for two days, and gold was modest, building on Friday’s 1% gain.

Important events this week:

• Chinese lending rates Monday

• Eurozone Consumer Confidence, Monday

• James Bullard, Raphael Bostic and Thomas Barkin will speak as Fed Presidents on Monday

• Eurozone S&P Global Eurozone Manufacturing & Services PMI, Tuesday

• US new home sales, Tuesday

• Dallas Fed President Lorie Logan speaks Tuesday

• The Fed will release minutes of its March 2-3 monetary policy meeting on Wednesday. May

• Bank of England Governor Andrew Bailey speaks on Wednesday

• US Initial Jobless Claims, GDP, Thursday

• Rate decisions in Turkey, South Africa, Indonesia, South Korea Thursday

• Tokyo CPI, Friday

• US Consumer Income, Wholesale Inventories, Durable Staples, University of Michigan Consumer Sentiment, Friday

Some of the key movements in the markets:

Shares

• S&P 500 futures were little changed as of 9:20 am Tokyo time. The S&P 500 fell 0.1% on Friday

• Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.2% on Friday

• Hang Seng futures up 0.1%

• Japan’s Topix has hardly changed

• Australia’s S&P/ASX 200 fell 0.2%

• Euro Stoxx 50 futures up 0.7%

currencies

• The Bloomberg Dollar Spot Index is little changed

• The euro rose 0.1% to $1.0819

• The Japanese yen rose 0.1% to 137.79 per dollar

• The offshore yuan was little changed at 7.0241 per dollar

cryptocurrencies

• Bitcoin fell 0.3% to $26,768.3

• Ether is little changed at $1,805.69

Bind

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This story was created with the support of Bloomberg Automation.

– With the support of Rita Nazareth.

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