Business Maverick

Business Maverick

US stock futures rise on ‘productive’ debt talks: markets wrap

US stock futures rise on ‘productive’ debt talks: markets wrap
Pedestrians walk past the Tokyo Stock Exchange in Tokyo, Japan, on Thursday, 13 January 2022.

US equity futures rose while Treasury yields and a gauge of dollar strength were little changed after President Joe Biden and House Speaker Kevin McCarthy said they had a productive talk on the debt ceiling. 

The mildly positive but cautious tone flowed through into Asian stocks, with benchmark indexes trading higher on Tuesday in Japan, South Korea and Australia. Chinese equities fluctuated. Oil rose on improved risk appetite while gold’s allure as a haven waned, pushing the precious metal lower. 

While Biden said he and McCarthy agreed that default was off the table, investors are on tenterhooks with the clock ticking to 1 June, when Treasury Secretary Janet Yellen has advised her department may run out of cash.

Any agreement would have to be approved by Congress before then and in the meantime investors have jacked up the premium they demand to hold US paper that’s most at risk. The cost of insuring the nation’s sovereign debt against default with derivatives has also climbed.

Contracts for the S&P 500 and the Nasdaq 100 increased about 0.3%, an index of Asian shares also rose 0.2% and Euro Stoxx 50 futures also climbed 0.2%. Bitcoin ticked higher for the fourth time in five days. 

Yields on policy sensitive two-year Treasuries edged up one basis point to 4.32% after short-term rates rose on Monday. Australian and New Zealand government bond yields followed the moves in Treasuries. 

The optimism that emerged from the debt talks also pushed yield premiums on Asia ex-Japan investment-grade dollar bonds lower as the spreads set for the tightest in more than two months. 

“Right now, there’s probably going to be continued posturing by both sides, but at the end of the day, it’ll probably be resolved at the last minute,” Burns McKinney, senior portfolio manager at NFJ Investment Group, said on Bloomberg Television. “What we expect in the near term is heightened volatility.”

The moves on Tuesday followed fluctuating fortunes in US markets on Monday, when the S&P 500 drifted between gains and losses before closing flat. The tech-heavy Nasdaq 100 advanced 0.3%, though chipmakers were under pressure after China said products by Micron Technology Inc. failed a cybersecurity review.

China’s outlook

In Asia, concern is growing about China’s tepid post-pandemic recovery, which is having a negative impact on key commodity prices such as iron ore and copper. Both have both tumbled in recent trading days.

Signs of a geopolitical thaw between the regional powerhouse and the US helped lift Hong Kong stocks more than 1% on Monday after Biden hinted about improving relations with Beijing. The rally fizzled on Tuesday.

Meanwhile, the outlook for the Federal Reserve’s rate path is also on the minds of investors. St. Louis Fed president James Bullard said he’s thinking of two more rate hikes this year, while Minneapolis Fed president Neel Kashkari said if the US central bank pauses next month it should signal tightening isn’t over.

“The Fed’s in a bit of a bind,” Mitul Kotecha, head of emerging markets strategy at TD Securities, said on Bloomberg Radio. “With inflation remaining so sticky, the Fed may need to do more than they would like to do and that may increase the chances of a deeper recession.” DM

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