US stock futures, Asian stocks rise on debt deal: markets wrap

(Bloomberg) – U.S. stock futures and Asian stocks rose as risk appetite returned to global markets following the agreement between President Joe Biden and House Speaker Kevin McCarthy on the U.S. debt ceiling.

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Contracts for the S&P 500 and Nasdaq 100 gained about 0.5% at the Asian open on Monday. Japanese equities led gains in the region, with the Nikkei 225 and Topix indices gaining more than 1%.

Gold declined marginally while oil and bitcoin gained, reflecting buoyant sentiment.

Movements in currency markets were muted, with the dollar trading in tight ranges of less than 0.2% against most of its major counterparts after hitting a two-month high earlier last week.

An indicator for US-listed Chinese stocks rallied on Friday, a positive sign for Hong Kong traders returning from a long weekend.

Investors grew increasingly confident on Friday that an agreement would be reached in Washington that would support the rise in US stock benchmarks. There, stocks continued to be propelled by technology stocks and the artificial intelligence hype.

Investors on Friday called for a lower premium for holding US Treasuries, which faced the greatest risk of default unless a timely agreement is reached. US markets are closed for a bank holiday on Monday, as are markets in the UK and some parts of Europe.

“The obvious positive interpretation is that negative tail risk is about to disappear from the table,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “As the distraction of the debt ceiling recedes, investors can do so now.” Returning their attention to the underlying fundamentals. However, there is concern that the fundamental picture remains fragile.”

The agreement reached by Biden and McCarthy over the weekend has yet to be passed by Congress. The clock will run out on June 5, when Treasury Secretary Janet Yellen has declared that money will be tight. There is much about the deal that Democrats and Republicans will not like.

The bond market is also struggling with a lot. The Treasury must replenish its coffers by selling more debt, and the passage of the deal puts the focus back on the Federal Reserve’s fight to contain inflation. Treasury futures fell early Monday.

“Uncertainty remains about the length and severity of the ongoing earnings recession, and perversely, the near-term liquidity squeeze could worsen due to the government’s need to clear its debt issuance backlog,” Suzuki said. “While the markets managed to avert an immediate crisis, there is still a long way to go on the coast.”

Rate-sensitive two-year Treasuries were higher on Friday as traders speculated on how a debt deal could affect the Fed’s interest rate path further. Two-year Treasury yields hovered around 4.65% after a consumer spending report showed the Fed has more work to do to get inflation back on track. The consumer spending index, one of the Fed’s favorite indicators of inflation, rose faster-than-expected by 0.4% in April.

“Markets will face liquidity problems as the Treasury will issue a flurry of bonds to replenish its cash reserves,” said Charu Chanana, market strategist at Saxo Capital Markets. “Not to forget, the hawkish Fed policy reassessment we saw last week could potentially get worse if we get a hot job ad this week.”

In stock markets, the S&P 500 was up 1.3% on Friday and the tech-heavy Nasdaq 100 was up 2.6% as Marvell Technology Inc. said sales in 2024 will be “at least would double,” echoing the assessment of competitor chipmaker Nvidia Corp. Start of the week.

Elsewhere, interest in emerging markets will increase after Turkish President Recep Tayyip Erdogan’s election victory, raising the prospect of further tensions with Western governments and increased uncertainty for investors.

Important events this week:

• US Memorial Day Holiday. The UK and some European markets are also closed on Monday for bank holidays

• Eurozone Economic Confidence, Consumer Confidence, Tuesday

• US consumer confidence, Tuesday

• Richmond Fed President Thomas Barkin was interviewed by NABE on Tuesday as part of its monetary policy webinar series

• China manufacturing PMI, non-manufacturing PMI, Wednesday

• Vacancies in the US, Wednesday

• The Fed releases an economic survey in the Beige Book on Wednesday

• Philadelphia Fed President Patrick Harker hosts a fireside chat Wednesday on global macroeconomics and monetary conditions

• Boston Fed President Susan Collins and Fed Governor Michelle Bowman speak in Boston on Wednesday.

• ECB releases Financial Stability Report on Wednesday

• China Caixin Manufacturing PMI, Thursday

• Eurozone HCOB Eurozone Manufacturing PMI, CPI, Unemployment, Thursday

• US Construction Spending, Initial Jobless Claims, ISM Manufacturing, Light Vehicle Sales, Thursday

• ECB Spending reports on its May 3-4 monetary policy meeting. ECB President Christine Lagarde speaks at the German Savings Banks Conference on Thursday

• Philadelphia Fed President Patrick Harker addresses the economic outlook at NABE’s webinar on Thursday

• US Unemployment, Nonfarm Payrolls, Friday

Some of the key movements in the markets:

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• S&P 500 futures up 0.4% as of 9:09 am Tokyo time. The S&P 500 rose 1.3% on Friday

• Nasdaq 100 futures were up 0.7%. The Nasdaq 100 rose 2.6%

• Japan’s Topix rose 1.3%

• Australia’s S&P/ASX 200 rose 1%

currencies

• The Bloomberg Dollar Spot Index is little changed

• The euro was little changed at $1.0719

• The Japanese yen fell 0.2% to 140.89 per dollar

• The offshore yuan was little changed at 7.0791 per dollar

• The Australian dollar rose 0.1% to $0.6525

cryptocurrencies

• Bitcoin surged 2.1% to $28,137.56

• Ether is up 3% to $1,910.15

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raw materials

• West Texas Intermediate crude rose 0.8% to $73.22 a barrel

• Spot gold fell 0.2% to $1,942.09 an ounce

This story was created with the support of Bloomberg Automation.

– With support from Isabelle Lee and Winnie Hsu.

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