Equity Gains On Passing US Debt Bill, Fed Stop Talking

LONDON/TOKYO (Reuters) – Global stocks rose on Thursday, as bets eased of a U.S. interest rate hike this month and a softening of the U.S. House of Representatives’ passage of a bill to suspend the federal debt ceiling.

A divided House of Representatives passed a bill to suspend the $31.4 trillion debt ceiling — and avoid a catastrophic default — with majority support from both Democrats and Republicans, sparking optimism that it could move to the Senate before the weekend.

The Euro Stoxx 600 (.STOXX) rose 0.8% after closing at a two-month low in the previous session. US S&P 500 e-Mini futures rose 0.2%.

In essence, the US legislation removes the federal government’s borrowing limit temporarily until January 1, 2025. The timeline allows President Joe Biden and Congress to set aside the politically risky issue until after the November 2024 presidential election.

“It’s very hard to believe that this wouldn’t be a formality in the Senate,” said Ray Attrell, head of foreign exchange strategy at the National Australia Bank.

The MSCI World Stock Index (.MIWD00000PUS), which tracks stocks in 47 countries, rose 0.2%.

It also boosted the mood among US Federal Reserve officials including Governor and Vice President nominee Philip Jefferson who indicated a “skip” of a rate hike at the June 13-14 Fed policy meeting. The comments saw the dollar fall to a one-week low against the yen before adding 0.2%, while Treasury yields rose from their peers in the past two weeks.

“The market at the moment is also really focused on macro trends, such as options tapers by central banks,” said Sandrine Perret, portfolio manager at Unigestion. “We’re not there yet, but we’re closer to it.”

Earlier, MSCI’s broadest index of Asia-Pacific shares (.

A sudden swing in growth in Chinese factory activity also boosted sentiment, in a rare positive sign recently of the country’s post-pandemic recovery. Crude oil prices are back from their lowest levels in four weeks.

HIKE SKIP?

Money markets are currently putting odds at around 38% for a Fed hike on June 14, up from around 70% earlier on Wednesday, after some unexpectedly hot jobs numbers.

However, shortly after, the Fed’s Jefferson said skipping a rate hike in two weeks would buy policymakers time to see more data before making a decision. Philadelphia Fed President Patrick Harker said on Wednesday that he is now inclined to support a “skip” in rate hikes.

Closely watched employment data is due this week, with the ADP survey to be released later in the day, followed by the monthly non-farm payrolls report on Friday.

“It was a fairly strong retracement in terms of market expectations for the June meeting, and it came against the data,” said Tony Sycamore, analyst at IG Markets.

The euro fell ahead of inflation data from the euro zone due at 0900 GMT. It was last down 0.2% at $1.06640, heading towards Wednesday’s two-month low of $1.0635.

The benchmark 10-year US Treasury yield rose to 3.6829%, after falling to 3.6140% overnight for the first time since May 18.

Additional reporting by Tom Wilson in London and Kevin Buckland in Tokyo; Editing by Simon Cameron-Moore, Lincoln Feast and Emilia Sithole Matares

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