Market Wrap: 30 May 2023

Market Wrap: 30 May 2023

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

    • Biden, McCarthy agreement now faces Congressional hurdle
    • Hong Kong China stock gauge set for bear market; dollar steady

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.

Treasury yields fell across the curve on debt dated from five years to 30 years. Yields on short-dated Treasury bills – the most at risk of a default – were indicated lower in early trading as they extended a decline from recent highs.

The clock is ticking as backers of the agreement have only a week to get it through Congress before a possible June 5 default. 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. Even if the deal is approved, traders have to contend with risks including a probable Federal Reserve rate hike, a slowdown in China and a liquidity drain as the Treasury replenishes its cash reserves.

Contracts on the S&P 500 and Nasdaq 100 rose 0.3% and 0.5% respectively, while European stocks were little changed. Nestle S.A. fell after the Swiss food maker said CFO Francois-Xavier Rogeris stepping down. 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%.

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

Assuming Congress approves the debt deal, the Treasury Department may sell more than $1 trillion of bills through the end of the third quarter to bolster its cash balances, 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 Fed 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 dipped 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



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