Bonds, US Futures Rise as Debt-Deal Lobby Ramps Up: Markets Wrap

(Bloomberg) — Treasuries and US stock futures advanced on hopes that Congress will pass a debt-accord to head off a default as White House and Republican congressional leaders stepped up lobbying in support of the deal.

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Near-maturity Treasury bills rallied in Asia as trading resumed Tuesday after the US markets were closed for Memorial Day. More broadly, Treasury yields declined across the curve on debt dated from five years to 30 years.

The clock, however, is ticking as backers of the agreement have only a week to get it through Congress before a possible June 5 default — which could have catastrophic consequences for global markets. President Joe Biden has been personally calling lawmakers to support the bill, with a vote by the House likely Wednesday, before it goes to the Senate.

Contracts on the S&P 500 and Nasdaq 100 rose 0.3% and 0.4%, respectively, while European futures made small gains. An Asia equity benchmark fell as a key gauge of Hong Kong-listed Chinese shares headed for a bear market.

The Hang Seng China Enterprises Index was set to fall for a fifth day, taking its losses from a Jan. 27 peak to more than 20%. Shanghai’s benchmark index also slid. A wobbling economic recovery, intensifying geopolitical tensions and a weaker yuan have been keeping global investors away from Chinese markets.

The offshore yuan weakened past 7.1 per dollar for the first time since November.

The picture was different in South Korea, with the Kospi index inching closer to a technical bull market on gains across chipmakers amid a frenzied interest in the artificial intelligence sector. Samsung Electronics Co. and SK Hynix Inc. surged to the highest in more than a year after Morgan Stanley raised price targets for the Korean chipmakers, with SK Hynix its top pick as a key beneficiary of Nvidia Corp.’s AI opportunity.

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The dollar, which has benefited from angst around the statutory borrowing limit, erased early declines rise versus most of its Group-of-10 peers. Still, an index of greenback remained below the two-month high set last week.

Assuming Congress approves the debt deal, the Treasury Department may soon replenish its cash balance and sell more than $1 trillion of bills through the end of the third quarter, according to some estimates.

“There is a significant potential for a liquidity drain in the system that is certainly not constructive for risk markets,” Vishwanath Tirupattur, chief fixed income strategist at Morgan Stanley, said on Bloomberg Television.

For Federal Reserve policymakers, details of the deal will be another consideration when they meet in June.

“We believe this deal cements a 25 basis point hike at the June 13-14 FOMC meeting. With banking sector stresses fading, a potential default was really the only thing that could have prevented a hike next month,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a note. “More importantly, rates cuts by year-end are now totally priced out, as they should have been long ago.”

In commodities, oil erased an earlier gain and gold fell to the lowest since March.

Key events this week:

• Eurozone economic confidence, consumer confidence, Tuesday

• US consumer confidence, Tuesday

• Richmond Fed President Thomas Barkin interviewed by NABE as part of monetary policy webinar series, Tuesday

• China manufacturing PMI, non-manufacturing PMI, Wednesday

• US job openings, Wednesday

• Fed issues Beige Book economic survey, Wednesday

• Philadelphia Fed President Patrick Harker has fireside chat on the global macro-economy and monetary conditions, Wednesday

• Boston Fed President Susan Collins and Fed Governor Michelle Bowman speak in Boston, Wednesday.

• ECB issues financial stability review, Wednesday

• China Caixin manufacturing PMI, Thursday

• Eurozone HCOB Eurozone Manufacturing PMI, CPI, unemployment, Thursday

• US construction spending, initial jobless claims, ISM Manufacturing, light vehicle sales, Thursday

• ECB issues report its May 3-4 monetary policy meeting. ECB President Christine Lagarde speaks at German savings banks conference, Thursday

• Philadelphia Fed President Patrick Harker speaks on economic outlook at NABE’s webinar, Thursday

• US unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 6:41 a.m. London time. The S&P 500 rose 1.3% on Friday

• Nasdaq 100 futures rose 0.4%. The Nasdaq 100 rose 2.6%

• Japan’s Topix was little changed

• Australia’s S&P/ASX 200 fell 0.1%

• Hong Kong’s Hang Seng fell 0.4%

• The Shanghai Composite fell 0.8%

• Euro Stoxx 50 futures rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.2% to $1.0690

• The Japanese yen was little changed at 140.48 per dollar

• The offshore yuan fell 0.3% to 7.1048 per dollar

• The Australian dollar fell 0.5% to $0.6507

• The British pound fell 0.1% to $1.2339

Cryptocurrencies

• Bitcoin rose 0.2% to $27,741.74

• Ether rose 0.2% to $1,897.75

Bonds

• The yield on 10-year Treasuries declined four basis points to 3.76%

• Japan’s 10-year yield was little changed at 0.430%

• Australia’s 10-year yield declined two basis points to 3.68%

Commodities

• West Texas Intermediate crude fell 0.7% to $72.17 a barrel

• Spot gold fell 0.4% to $1,935.86 an ounce

This story was produced with the assistance of Bloomberg Automation.

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