A look at the day ahead in US and global markets from Mike Dolan
As the AI-led tech stock boom unfolds, there is light on the end of the US debt ceiling saga – only markets now believe the Federal Reserve will tighten policy further this summer.
Investors have juggled those three strands over the past 24 hours, with the blue-chip stock index relieved of the Nvidia-inspired push to artificial intelligence and chip stocks everywhere.
More generally, there are signs that the US economy is still navigating choppy waters – at least without any major labor market disruptions yet. And the banking stress that was a game-changer in March also appears to be easing, judging by the latest figures from the central bank.
Encouraged by more hawkish policymakers this week, the result has been a remarkable overhaul of the Fed’s policy horizon which now has futures markets almost entirely pricing in another quarter-point rate hike at the range. from 5.25 to 5.50% by the end of July.
And it’s not the only one. Cheating UK gilts and sending bond yields soaring after another disastrous UK inflation reading this week, the Bank of England is now set to hike rates four more times to 5.5% this week. year as well. April’s dynamic retail figures released on Friday will not stand in their way.
Friday brings some hope that the White House and congressional leaders can strike a deal on lifting the US debt ceiling they said overnight was now close – just before the Treasury Department shortage of cash from June 1 next week.
Reuters sources said the two sides, who met virtually on Thursday, are only $70 billion apart on total government discretionary spending of more than $1 trillion.
It’s unclear exactly how much time Congress has left to act. Even though the Treasury Department insists June 1 is the deadline, it said Thursday it will sell $119 billion worth of debt that will mature by that date – suggesting to some market watchers that it was not an ironclad deadline.
Concerns in the Treasuries market eased only slightly, and yields on one-month bills remained above 6% early on Friday.
And the continued rise in the rest of the short-term yield curve is due both to the Fed’s new rate hike pricing and to expectations that even if the debt ceiling is raised, the department Treasury will have to rush to issue up to $1 trillion of new debt to meet near-term funding needs.
On the Fed’s thinking at least, the release later Friday of the Personal Income Expenditure (PCE) Inflation Gauge for April will be the dominant data release ahead of a state-side long weekend.
The resurgence of the US dollar returned some of this week’s strong gains to the world on Friday.
Cooling down a bit after Thursday’s Nvidia spur, S&P500 stock futures were flat at the open – with markets around the world slightly higher.
To indicate how tech-driven this year’s equity rally has been, the FANG+TM (.NYFANG) index of the top 10 digital, chip and tech names rose 55% to present in 2023, while the Russell 2000 (.RUT) of mostly small-cap US stocks is unchanged.
That said, Nvidia’s 25% rise sent the entire chip sector skyrocketing on Thursday. The Philadelphia SE Semiconductor Index (.SOX) jumped nearly 7% to its highest level in more than a year in its biggest daily gain since November.
And shares of Marvell Technology (MRVL.O) jumped 17% overnight after forecasting its AI revenue would double for the year, becoming the second U.S. chip company in as many days to bet on the revolutionary technology.
Events to watch for later Friday:
* Personal spending, income and PCE inflation gauge in the United States in April; April Durable Goods Orders; April Goods Trade Balance and Wholesale and Retail Inventories; Kansas City Federal Reserve May Services Index
* Debt ceiling negotiations
By Mike Dolan, editing by Emelia Sithole-Matarise [email protected]. Twitter: @ReutersMikeD
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