Wall Street stocks rose on Wednesday as investors grew more confident that the US will avoid a government default after policymakers edged closer towards a deal in Washington.
Wall Street’s benchmark S&P 500 rose 0.6 per cent while the tech-heavy Nasdaq Composite was up 0.5 per cent.
US president Joe Biden said on Wednesday he was “confident” he could reach a budget agreement with Congress to avoid a default on US debt, and left the door open to meeting a key Republican demand of adding work requirements to social safety net programmes.
Officials such as Treasury secretary Janet Yellen have warned that the US could default on its debt as early as next month, with the issue prompting Biden to cut short his forthcoming overseas trip.
“If we look at the broader picture, equities are not priced for a devastating scenario. Ultimately, markets expect a resolution to happen,” said Georgios Leontaris, chief investment officer for Europe, Middle East and Africa at HSBC Global Private Banking.
Government bonds steadied from the previous sessions, with the yield on interest rate-sensitive two-year Treasury notes rising 0.07 percentage points to 4.15 per cent. The yield on the benchmark 10-year note rose 0.02 percentage points to 3.56 per cent. Bond yields rise when prices fall.
Yields on the shortest-term bills that mature next month — at about the date the government could run out of money — hit their highest levels since before the 2008 financial crisis earlier in the week. The yield on the one-month Treasury bond rose 0.04 percentage points to 5.59 per cent.
One-year credit default swaps, a closely watched measure of US default risk, fell 10.6 per cent to 154 basis points, after having reached their highest point since 2009 at the end of last month.
The dollar index, which tracks the currency against a basket of six peers, gained 0.3 per cent to its highest level since March as investors looked to haven assets.
“Certain parts of the market are pricing in a bigger risk than others,” noted Leontaris.
Meanwhile, the shares of Minneapolis-based retailer Target rose 2.6 per cent after the company reported that it exceeded earnings forecasts in the first quarter.
The announcement bucks the trend in the retail sector, as home improvement retailer Home Depot warned on Tuesday that its profits would fall below expectations this year, while the Census Bureau reported that US retail sales came in below expectations in April.
European stocks were subdued, with the region-wide Stoxx 600 falling 0.3 per cent, FTSE 100 down 0.4 per cent, and France’s Cac 40 ending the day down 0.1 per cent.
Traders digested the release of the eurozone’s final harmonised index of consumer prices for April, which posted a slight increase in the annual rate to 7 per cent, up from 6.9 per cent in March.
Core inflation, which excludes food and energy costs, dipped 0.1 percentage points to 5.6 per cent.
The European Central Bank slowed the pace of its rate increases this month, raising its deposit rate by a quarter of a percentage point to 3.25 per cent, but said it had more ground to cover.
In Asia, China’s CSI 300 shed 0.5 per cent and Hong Kong’s Hang Seng index fell 2.1 per cent.
Japan’s Topix was the outlier, rising 0.3 per cent, following stronger than expected gross domestic product figures.
