A look at the day ahead in the US and global markets by Mike Dolan.
A well-choreographed debt ceiling ceiling looks set to go down the drain, while tech companies have once again become a battleground in tense geopolitics.
Despite growing optimism last week about a bipartisan deal on raising the U.S. debt limit, preventing the government from running out of cash early next month and forcing a technical default on short-term debt, the negotiations arose on Friday afternoon and over the weekend.
But another top-level meeting on Monday keeps the show on the road. President Joe Biden and Republican House Speaker Kevin McCarthy are meeting again later Monday on the issue after a “productive” phone call as the president returned to Washington from the G7 summit in Japan.
With just nine days to reach a deal before a cash crunch begins to force government shutdowns, Treasury Secretary Janet Yellen insisted June 1 remains a “hard deadline” for raising the federal debt limit and said the odds of the government collecting are pretty low. enough income to get you through June 15th.
Biden told reporters in Japan that he believed he could invoke the 14th Amendment to the U.S. Constitution to raise the debt ceiling without Congress, but doubted there would be enough time left to use that unproven legal theory to avoid default.
If Treasury yields and the dollar reflected more immediate concerns about the row, anxiety rose slightly on Monday despite more relaxed global equity markets. Yields on one-month notes now covering this early June period were 5.66% early Monday, up more than 10 basis points from Friday’s close and still nearly 60bps above swaps “without risk” for the same period.
But the dollar was a little firmer.
The weekend’s G7 summit raised several conflicting angles on Western relations with China.
Chinese state media were grappling with a joint G7 communique that singled out China on issues from Taiwan and nuclear weapons to economic coercion and human rights abuses and called for less supply chain dependence on country
Alongside the angry rhetoric, there was a more direct impact from a decision by Beijing to ban U.S. firm Micron Technology ( MU.O ) from selling memory chips to key domestic industries, a decision that raised shares of domestic companies that could benefit from the move.
And yet there were also more positive probes from the United States. Biden said Sunday that the G7 did not want to “decouple” from China, but rather “de-risk and diversify.” And he added that he expected a thaw in frozen relations with China “shortly”.
That bit of optimism along with Micron’s move saw Hong Kong shares outperform in a generally good start to the week for Asian stocks.
European stocks and Wall St futures were flat.
As AI-fueled US tech stocks have led the way this year, the S&P (.SPX) has gained nearly 10% this year and hit a nine-month high on Friday. Bank of America on Monday raised its year-end forecast for the index by about 300 points to 4,300, up another 3% from there.
With macro markets awaiting early May business sentiment readings this week, as well as US and UK inflation reports, optimism was high that the Fed would refrain from raising rates again in June, even if it continued to suppress market prices for rate cuts later in June. course
Fed Chairman Jerome Powell said Friday that “the risks of doing too much or doing too little are increasingly balanced.” Minneapolis Fed President Neel Kashkari said on Sunday that he might support keeping rates steady at the next meeting.
Futures markets see a more than 80% chance of a break in June and are still pricing in nearly 50bps of year-end cuts.
Elsewhere, Greek markets rose as Prime Minister Kyriakos Mitsotakis claimed victory in parliamentary elections on Sunday.
In deals, London-based law firm Allen & Overy and New York-based Shearman & Sterling plan to merge in a deal that would create one of the world’s largest legal practices with combined global revenue of approximately $3.4 billion of dollars
Events to watch later on Monday:
* Euro zone May consumer confidence
* US President Joe Biden and Republican Speaker of the House Kevin McCarthy debate the debt ceiling
* US Treasury 3- and 6-month Treasury Bill Auctions
* San Francisco Federal Reserve President Mary Daly, Richmond Federal Reserve President Thomas Barkin, Atlanta Federal Reserve President Raphael Bostic and St. Louis, James Bullard, speak.
* US corporate earnings: Zoom, Nordson
Democratic President Biden’s proposed 2024 budget and the Republicans’ “Limit, Save, Grow” Act will generate budget savings for a decade, but how they will do it is entirely different. Reuters Graphics Reuters Graphics Reuters Graphics
By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD
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