(Bloomberg) — The stock market jumped on speculation that a narrower group of Washington negotiators will break the impasse over raising the US debt ceiling and avert an unprecedented default.
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Stocks snapped a recent trading slowdown, with gains in the S&P 500 rising to 1% and the Nasdaq 100 hitting its highest since August. Treasurys fell, with the 10-year yield approaching 3.6%. President Joe Biden has expressed confidence there will be no default, and House Speaker Kevin McCarthy said a deal this week was “possible.”
“We don’t want to get too excited because the two sides are still so far apart,” said Win Thein, global head of currency strategy at Brown Brothers Harriman. “However, we feel there is a real effort to avoid debt ceiling disaster as Date X June 1st is fast approaching. Stay tuned.”
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Jamie Dimon, president of JPMorgan Chase & Co., said the US government “most likely” will not default on its debt. He joined top executives at major banks in a meeting with Senate Majority Leader Chuck Schumer to discuss a debt limit.
The amount of money the US has to pay its bills fell to $87 billion on May 15, increasing the chances the government will run out of cash by early June if the debt limit is not raised or suspended by then. The Treasury’s bank account has been under downward pressure recently due to measures taken to avoid breaching the $31.4 trillion debt ceiling.
“We all know that the US Treasury is about to run out of ways to pay its bills, but we’ve seen this movie many times before,” said Chun Wang of the Leuthold Group. While, in theory, there is a risk of default, we certainly don’t recommend planning our lives around it. The scenario is very predictable: political posturing and persistence will continue until the eleventh hour, after which a deal will be hastily drawn up to avoid default.”
Wang added that if history is any guide, the debt-ceiling turmoil tends to be short-lived, without having a significant impact on stocks before or after the decision. However, the August 2011 example surprised many investors, as stocks slumped for a week or so before stabilizing. And assuming the decision date is June 1, the current pattern is “uncomfortably similar to what it was in August 2011,” he noted.
To Amy Wu Silverman of RBC Capital Markets, While markets are betting on a hard end to the debt ceiling debate, if they are wrong, investors could miss out on the gains.
“The optimism story doesn’t exist,” she told Bloomberg TV. Is there a possibility of a miracle in Congress? If at all it’s a little easier than we expect, this right-tail is really cheap.”
Also helping to boost sentiment on Wednesday was a rally in regional banks after Western Alliance Bancorp reported deposit growth, alleviating concerns about the health of the industry. Target Corp. stuck to its annual forecast after reporting higher-than-expected first-quarter earnings, even as “weak sales trends” threatened to derail results in the short term.
Main events this week:
US Initial Jobless Claims, Conference Board’s leading indicator, Existing Home Sales, Thursday
Japanese CPI, Friday
European Central Bank President Christine Lagarde takes part in a panel discussion at the Central Bank of Brazil conference, Friday
John Williams of the Federal Reserve Bank of New York speaks at a monetary policy research conference in Washington. Federal Reserve Chairman Jerome Powell and former Chairman Ben Bernanke to participate in a panel discussion on Friday
Some of the major movements in the markets:
The S&P 500 is up 1.2% as of 4 pm New York time
The Nasdaq 100 rose 1.2%.
The Dow Jones Industrial Average rose 1.2%.
The MSCI World Index rose 0.6%.
The Bloomberg Spot Dollar Index rose 0.2%.
The euro fell 0.2 percent to $1.0840
The British pound was little changed at $1.2493
The Japanese yen fell 0.9 percent to 137.60 per dollar
Bitcoin rose 1.7% to $27,405.7
Ether rose 0.5% to $1,830.52
The yield on the 10-year Treasury note advanced four basis points to 3.58%.
Germany’s 10-year yield fell 2 basis points to 2.34%.
The UK 10-year yield advanced 2 basis points to 3.84%.
West Texas Intermediate crude rose 2.7 percent to $72.74 a barrel
Gold futures fell 0.3 percent to $1,986.40 an ounce
This story was produced with help from Bloomberg Automation.
– With assistance from Cecil Goucher.
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