Markets pointed to a recovery from a selloff on Wall Street as traders pinned hopes on talks in Washington to break the deadlock on raising the debt ceiling. The dollar climbed.
(Bloomberg) — Markets pointed to a recovery from a selloff on Wall Street as traders pinned hopes on talks in Washington to break the deadlock on raising the debt ceiling. The dollar climbed.
US stock futures rose and Treasuries steadied as White House and congressional negotiators continued to try to resolve their differences.
Anxiety that leaders in Washington will be unable to stave off a historic default before the June 1 deadline is unsettling markets. Yields rose across the US curve Tuesday, with the rate on 30-year notes climbing to around 3.9% — the highest since the turmoil affecting regional banks that erupted in early March.
A rally that lifted global stocks by almost 9% this year through the end of April reversed this month as the debt-ceiling standoff compounded fears about an economic slowdown.
“That is leading to the reason why equity markets have stalled over the last couple of weeks because you are not really paid now to make big bets ahead of this event,” Grace Peters, JPMorgan Private Bank’s head of investment strategy, said in an interview with Bloomberg TV.
Negotiators are seeking a framework agreement to review upon President Joe Biden’s return from a truncated trip to Asia. Any breakthrough in the talks would give markets cause to rally, dissipating one of the biggest tail risks weighing on sentiment.
“Longer term, that would be a dip that we would buy if that were to come to pass,” Peters said. “The market does ultimately I think assume this will get resolved.”
In the meantime, Treasury bills maturing after June 1 are under pressure, as costs to insure Treasuries in the credit-default swap market surge. Other parts of the Treasury curve steadied, with the rate-sensitive two-year yield at 4%.
US housing starts increased in April in a sign that key parts of the economy are standing up to the Fed’s rate-hiking cycle.
Read more: Cash Is King Again as Debt-Ceiling Standoff Deepens: Macro View
In premarket trading, shares of US regional banks rallied after Western Alliance Bancorp reported growth in deposits this quarter, helping to allay concern the industry has mismanaged rate risks. The SPDR S&P Regional Banking ETF rose 1.5%.
Key events this week:
- US initial jobless claims, Conference Board leading index, existing home sales, Thursday
- Japan CPI, Friday
- ECB President Christine Lagarde participates in panel at Brazil central bank conference, Friday
- New York Fed’s John Williams speaks at monetary policy research conference in Washington; Fed Chair Jerome Powell and former chair Ben Bernanke to take part in panel discussion, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 8:40 a.m. New York time
- Nasdaq 100 futures rose 0.1%
- Futures on the Dow Jones Industrial Average rose 0.4%
- The Stoxx Europe 600 was little changed
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $1.0817
- The British pound fell 0.3% to $1.2452
- The Japanese yen fell 0.6% to 137.21 per dollar
Cryptocurrencies
- Bitcoin fell 0.9% to $26,701.88
- Ether fell 1.5% to $1,794.79
Bonds
- The yield on 10-year Treasuries was little changed at 3.53%
- Germany’s 10-year yield declined four basis points to 2.31%
- Britain’s 10-year yield declined one basis point to 3.80%
Commodities
- West Texas Intermediate crude was little changed
- Gold futures fell 0.2% to $1,989.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Allegra Catelli, Sagarika Jaisinghani and Michael Msika.
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