Markets React with Relief and Caution to Debt Limit Agreement.

Markets React with Relief and Caution to Debt Limit Agreement.

Markets React with Relief and Caution to Debt Limit Agreement. After the weekend’s tentative debt-ceiling compromise, hopes rose that the United States would avoid a catastrophic default, and futures for American equities rose slightly. European equities fluctuated amid fair trade due to the holidays.

With trading expected to stop early for Memorial Day, S&P 500 futures rose approximately 0.2%, and Nasdaq 100 futures rose nearly 0.3%. The dollar’s Friday drop was maintained without cash trade, while Treasury futures were unchanged. The dollar has benefited from concerns over the statutory borrowing limit.

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After Prime Minister Pedro Sanchez unexpectedly called a snap election after his party suffered considerable losses in regional and local elections on Sunday, the Stoxx Europe 600 index inched down, with Spain’s benchmark underperforming. As markets in the UK and numerous European countries remained closed for national holidays, volumes were almost 60% lower than usual. SBB rose after the troubled Swedish landlord hinted at a possible sale. Although Chinese stocks contributed to a rise in the region’s stock market index, they edged closer to bear market territory.

Joe Biden, Vice President, and Kevin McCarthy, Speaker of the House, are optimistic that lawmakers would approve their plan to reduce spending and raise the debt ceiling. Traders still have a lot to worry about, such as the possibility of another interest rate hike from the Federal Reserve and an anticipated deluge of bond issuance from the US Treasury Department, even if lawmakers complete the deal before the US government runs out of cash in about a week.

Deputy chief investment officer at Richard Bernstein Advisors Dan Suzuki remarked, “The obvious positive interpretation is that a negative tail risk is close to being taken off the table.” Now that the debt ceiling issue is no longer a top priority, investors can return their attention to what matters: the economy. However, there is cause for caution because the overall picture is still unsettled.

German 10-year bond yields dropped by roughly 11 basis points as European bond prices increased. The 10-year bond yield in Spain also fell by the same amount.

Recep Tayyip Erdogan’s victory in Turkey’s presidential runoff election on Sunday damaged the lira as investors looked for evidence that Erdogan could begin to loosen the state’s tight hold on the market now that he will be in office for an unprecedentedly lengthy period. The leading stock index in the country rose.

Gold remained flat as demand for safe havens waned, while oil maintained most of its Friday gains and Bitcoin rose, indicating a moderately upbeat mood.

Persistent Uncertainty

Given that Treasury Secretary Janet Yellen has predicted that funds will run out on June 5, the deal reached by Biden and McCarthy is working against the clock. There are several aspects of the agreement that neither Democrats nor Republicans will support.

“Perversely, the near-term tightening of liquidity may worsen due to the government’s need to address its debt issuance backlog,” Suzuki said. “Uncertainty persists regarding the duration and severity of the ongoing earnings recession.” “While the markets avoided an immediate crisis, we are out of the woods yet.”

Friday saw a decline in the rate-sensitive two-year Treasury as investors pondered the impact of the debt accord on the Federal Reserve’s plans for future interest rate increases. After a report on consumer spending showed the Fed still has more work to get inflation back toward its target, the yield on two-year government bonds stayed around 4.65 percent.

Charu Chanana, the market strategist at Saxo Capital Markets, said, “Markets will have the liquidity hassles to deal with, as the Treasury will issue a deluge of bonds with restoring its cash reserves.” To rephrase, “Not to forget, the hawkish re-pricing of the Fed path that we saw last week could get firmer if we get a hot jobs print this week.”

This week’s most meaningful events:

  • U.S. observance of “Memorial Day” Monday was a holiday in the United Kingdom, Switzerland, and the Nordic countries.
  • Economic and consumer optimism in the Eurozone, on a Tuesday
  • Tuesday’s US Consumer confidence
  • On Tuesday, NABE had a webinar in their ongoing series on monetary policy, and in it, they interviewed Richmond Fed President Thomas Barkin.
  • China’s manufacturing and service PMIs will be released on Wednesday.
  • Vacant Jobs in the United States, Wednesday
  • Problems with the Fed Survey of the Economy in the Beige Book, Due Out This Wednesday
  • On Wednesday, the president of the Federal Reserve Bank of Philadelphia, Patrick Harker, will do a fireside chat to discuss the state of the global macroeconomy and monetary circumstances.
  • Fed Governor Michelle Bowman and Boston Fed President Susan Collins gave a joint press conference in Boston on Wednesday.
  • The European Central Bank releases its quarterly report on financial stability on Wednesday.
  • Indicator of Manufacturing Activity in China, as Measured by the Caixin Survey, for Thursday
  • Banking Confederation of the Eurozone PMI, CPI, and Unemployment Rate for the Euro Area, This Thursday
  • Thursday in the United States: building spending, new jobless claims, the ISM manufacturing index, and sales of light vehicles.
  • European Central Bank publishes minutes from May 3-4 policy meeting. On Thursday, European Central Bank President Christine Lagarde addressed a convention of German savings banks.
  • At Thursday’s NABE webinar, Philadelphia Fed President Patrick Harker discussed the economy and its future.

Friday: US jobless rate and nonfarm payrolls

Here are a few examples of significant market shifts:

Stocks

  • As of 9:56 AM EST, S&P 500 futures were up 0.2%.
  • Nasdaq 100 futures increased by 0.3%.
  • The Stoxx Europe 600 index dropped 0.2%.
  • There was not much of a shift in the MSCI World Index.

Currencies

  • There was not much movement in the Bloomberg Dollar Spot Index.
  • The Eurozone currency dropped 0.1% to $1.0709 per dollar.
  • At $1.2344, the British pound did not move.
  • The USD/JPY exchange rate increased by 0.3% to 140.22 yen.

Cryptocurrencies

  • Bitcoin’s price jumped by 1.3% to $27,919.46.
  • The price of ether gained 2.5% to $1,901.1 in the last 24 hours.

Bonds

  • At 2.43 percent, Germany’s 10-year yield fell 11 basis points.

Commodities

  • The price of a barrel of West Texas Intermediate crude dipped by 0.3% to $72.43.
  • Futures on the gold market hardly moved.
  • Bloomberg Automation was used in the making of this content.

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