US stock futures rise, dollar subdued on debt deal: Markets recap

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

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Contracts for the S&P 500 and Nasdaq 100 both gained about 0.5% as markets opened in Asia on Monday. Gold fell slightly while Oil and Bitcoin rose, reflecting the more buoyant tone.

Futures for benchmarks in Japan and Australia spiked higher and a gauge of U.S.-listed Chinese stocks rallied on Friday, a positive sign for Hong Kong traders returning from a long week -end.

Movements in currency markets were subdued, with the dollar trading in tight ranges around 0.1% against most of its major counterparts after hitting a two-month high earlier last week.

Investors had grown increasingly confident on Friday that a deal would be reached in Washington, supporting gains in U.S. equity benchmarks. Stocks there also continued to be driven higher by tech stocks and the frenzy surrounding artificial intelligence.

On Friday, investors were demanding less of a premium for holding the US Treasuries that were most at risk of not being paid if a deal was not struck in time. US markets are closed on Monday for a public holiday, as are those in the UK and parts of Europe.

“The obvious positive interpretation is that a negative tail risk is about to be taken off the table,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, “With the distraction of the debt ceiling that fades, investors can now refocus their attention on the underlying fundamentals.One concern, however, is that the fundamental picture remains shaky.

The deal struck by Biden and McCarthy over the weekend must pass Congress, with the clock ticking on June 5, when Treasury Secretary Janet Yellen said the money would run out. There’s a lot in the deal that Democrats and Republicans won’t like.

The bond market also has a lot to do. The Treasury will have to replenish its coffers by selling more debt and the passage of the agreement puts the focus back on the Federal Reserve’s fight to control inflation.

“Uncertainty remains about the duration and severity of the current earnings slump and, perversely, the near-term liquidity squeeze could worsen due to the government’s need to deal with its backlog of ‘debt issuances,'” Suzuki said. “While the markets managed to avoid an immediate crisis, the way is far from clear at the moment.”

The rate-sensitive two-year Treasury drifted on Friday as traders pondered how a debt deal could play into the Fed’s path forward on interest rates. The two-year yield hovered around 4.65% after a consumer spending report showed the Fed still has work to do to bring inflation back towards its target. The personal consumption expenditure price index, one of the Fed’s favorite inflation gauges, rose a faster than expected 0.4% in April.

In stocks on Friday, the S&P 500 rose 1.3% and the tech-heavy Nasdaq 100 added 2.6% as Marvell Technology Inc. said 2024 revenue would “at least double” from a year ago due to an increase in demand for AI, echoing sentiments from rival chipmaker Nvidia Corp. earlier in the week.

Elsewhere, there will be heightened interest in emerging markets after Turkish President Recep Tayyip Erdogan sealed an election victory, hinting at more friction with Western governments and more uncertainty for investors.

Key events this week:

  • American Memorial Day holiday. The UK and some European markets also closed for the holidays on Monday

  • Eurozone Economic Confidence, Consumer Confidence, Tuesday

  • US consumer confidence, Tuesday

  • Richmond Fed Chairman Thomas Barkin interviewed by NABE as part of a series of monetary policy webinars on Tuesday

  • China Manufacturing PMI, Non-Manufacturing PMI, Wednesday

  • U.S. job openings, Wednesday

  • Fed releases Beige Book economic survey on Wednesday

  • Philadelphia Fed Chairman Patrick Harker has a fireside chat on global macroeconomics and monetary conditions on Wednesday

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

  • ECB publishes Financial Stability Review on Wednesday

  • Caixin China manufacturing PMI, Thursday

  • Eurozone HCOB Eurozone manufacturing PMI, CPI, unemployment, Thursday

  • U.S. Construction Spending, Initial Jobless Claims, Manufacturing ISM, Light Vehicle Sales, Thursday

  • The ECB publishes a report on its monetary policy meeting on May 3 and 4. ECB President Christine Lagarde speaks at a conference on German savings banks on Thursday

  • Philadelphia Fed President Patrick Harker speaks on the economic outlook during the NABE webinar on Thursday

  • U.S. unemployment, nonfarm payrolls, Friday

Some of the major movements in the markets:

Shares

  • S&P 500 futures 0.4% at 8:05 a.m. Tokyo time. The S&P 500 rose 1.3% on Friday

  • Nasdaq 100 futures rose 0.6%. The Nasdaq 100 rose 2.6%

  • Nikkei 225 futures rose 1.5%

  • Australian S&P/ASX 200 index futures rose 1%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0720

  • The Japanese yen fell 0.1% to 140.80 per dollar

  • The offshore yuan was little changed at 7.0743 to the dollar

  • The Aussie dollar was little changed at $0.6522

Cryptocurrencies

  • Bitcoin rose 2% to $28,112.59

  • Ether rose 3% to $1,909.27

Obligations

Goods

  • West Texas Intermediate crude rose 0.7% to $73.16 a barrel

  • Spot gold fell 0.2% to $1,943.54 an ounce

This story was produced with assistance from Bloomberg Automation.

–With the help of Isabelle Lee.

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