LDN - Business

World stocks climb on hopes of successful debt ceiling outcome

[May 15, 2023] By Nell Mackenzie

LONDON (Reuters) - World stocks rose on Monday on cautious optimism ahead of this week's deliberations over the U.S. $31.4 trillion debt ceiling, a raft of economic data due and a bevy of central bankers lined up to hint about whether further rate hikes await.

European markets opened higher, with pan-region Stoxx up 0.2% as of 0854 GMT. Both S&P 500 futures and Nasdaq futures rose 0.4% and 0.3% respectively.

In emerging markets, the Turkish lira touched a two-month low after weekend elections looked headed for a runoff, while the Thai baht rallied almost 1% after Thailand's opposition routed military-allied parties also in weekend polls.

The lira was at 19.65 to the dollar at 0851 GMT, after reaching 19.70 in earlier trading, its weakest since a record low of 19.80 hit in March this year following earthquakes that killed at least 56,000.

It was on track for its worst trading session since early November. On the Istanbul bourse, a 6.38% drop triggered a market-wide circuit breaker.

On Monday, MSCI's broadest index of Asia-Pacific shares outside Japan reversed earlier losses to rise 0.7%, driven by a late rebound in Chinese and Hong Kong shares.

China's central bank on Monday held rates on medium-term policy loans steady, although expectations are building that monetary policy easing may be inevitable in coming months to support an economic recovery.

U.S. President Joe Biden expects to meet Congressional leaders on Tuesday for talks to raise the nation's debt limit and avoid a catastrophic default, saying on Saturday that the talks are moving along.

"The debt ceiling is the elephant in the room, but traders are holding out hope that common sense will win the day," said James Rossiter, head of global macro strategy at TD Securities in London.

Neither side wants a default, said Rossiter, who believed a deal would be found, but said anything was possible.

Concerns about the U.S. Congress not raising the debt ceiling on time have created large distortions in the short-end of the yield curve, as investors avoid bills that mature when the Treasury is at risk of running out of funds, and pour into alternative issues.

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A man walks past an electric monitor displaying Nikkei share average and the Japanese yen exchange rate against the U.S. dollar outside a brokerage in Tokyo, Japan May 2, 2023. REUTERS/Issei Kato

The yield on benchmark 10-year notes was little changed at 3.4756%, after rising 6 basis points on Friday, and two-year yields were steady at 3.9936%, having also jumped 10 basis points in the previous session.

Also this week, a host of Federal Reserve officials are speaking, with Chair Jerome Powell set for Friday, and could generate plenty of headlines to move the dial further.

Traders currently put the odds of the Fed holding rates steady at 17.7%, up from 8.5% a week ago, after a report on Friday showed U.S. long-term inflation expectations jumped to the highest since 2011, boosting the dollar and Treasury yields.

However, bets are still on as many as three quarter-point cuts by year-end, after CPI and PPI data supported the case of Fed pausing, given slowing inflation.

Fed Governor Michelle Bowman said on Friday that the U.S. central bank probably will need to raise interest rates further if inflation stays high.

"While we think the directional bias is right, i.e. a cut is the next move rather than a hike, it now may take softening in global growth or sharply weaker growth in order to even meet current market pricing, or fuel further dovish repricing," said John Briggs, global head of economics at NatWest Markets.

Oil prices declined for the fourth straight session. U.S. crude futures fell 0.2% to $70.20 per barrel, while Brent crude futures were down 0.2% to $74.29 per barrel.[O/R]

Gold prices were 0.3% higher at $2,017.42 per ounce.

(Reporting by Nell Mackenzie; Editing by Sonali Paul, William Maclean)

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