(Bloomberg) --Stocks rebounded after House Speaker Kevin McCarthy says he sees debt limit deal being considered on the House floor next week.
The S&P 500 erased losses. Treasury yields climbed on speculation the Federal Reserve will need to raise interest rates once again as inflation remains elevated.
Traders amped up wagers on a June rate increase to about 40% after Fed Bank of Dallas President Lorie Logan said the case for a pause next month is not clear. Central bank Governor Philip Jefferson suggested he is willing to be patient to see how the policy tightening over the past year filters through the economy.
Pictet Asset Management SA is shorting rates futures in a wager they'll fall in coming months as the Fed is unable to lower borrowing costs because of persistent inflation. Andres Sanchez Balcazar, its head of global bonds, believes market pricing for policymakers to reverse course and start cutting rates in September is "extreme."
As the US debt-ceiling deadlock heads to the wire, default odds appear well below those seen in previous such episodes, an anomaly that could be underpricing the risk of a payment lapse — while offering a record return.
Credit default swaps — instruments investors purchase to hedge exposure to a credit — currently imply a less-than 4% chance the US will default on debt over a one-year period, according to S&P Markit data. That's well below what was priced during a similar crisis in 2011, despite the more extreme polarization in Congress today and predictions for Treasury coffers to run dry by June 1.
On the corporate front, Cisco Systems Inc., the largest maker of machines that run computer networks and the internet, said orders declined 23% in the past quarter, sending shares down despite a strong sales forecast that topped analysts' projections. Walmart Inc. lifted its annual profit forecast after its discount model powered new market-share gains in the US, but Chief Financial Officer John David Rainey said the retailer is retaining a cautious view on US consumers.
Key events this week:
- Japan CPI, Friday
- ECB President Christine Lagarde participates in panel at Brazil central bank conference, Friday
- New York Fed's John Williams speaks at monetary policy research conference in Washington; Fed Chair Jerome Powell and former chair Ben Bernanke to take part in panel discussion, Friday
- MLIV Pulse Survey
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.2% as of 10:20 a.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 rose 0.3%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.5% to $1.0782
- The British pound fell 0.5% to $1.2423
- The Japanese yen fell 0.5% to 138.41 per dollar
Cryptocurrencies
- Bitcoin fell 0.2% to $27,274.74
- Ether fell 0.4% to $1,818.83
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 3.64%
- Germany's 10-year yield advanced 11 basis points to 2.45%
- Britain's 10-year yield advanced 12 basis points to 3.96%
Commodities
- West Texas Intermediate crude fell 0.7% to $72.35 a barrel
- Gold futures fell 1.2% to $1,980.50 an ounce
- This story was produced with the assistance of Bloomberg Automation
--With assistance from Carly Wanna and Peyton Forte.
© 2023 Bloomberg L.P.
