US stocks rose at the open on Wednesday as policymakers in Washington struck an optimistic note they could strike a deal on spending that would avoid an unprecedented government default.
Wall Street’s benchmark S&P 500 rose 0.3 per cent while the tech-heavy Nasdaq Composite climbed 0.2 per cent at the opening bell.
The moves come after the White House reported that US president Joe Biden was “optimistic” about a deal that would raise the nation’s debt ceiling ahead of a looming deadline, even though lawmakers failed to reach a compromise at a meeting on Tuesday.
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 upcoming 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 also steadied from the previous sessions, with the yield on interest rate-sensitive two-year Treasury notes rising 0.06 percentage points to 4.13 per cent. The yield on the benchmark 10-year note was flat at 3.55 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 0.03 percentage points to 5.58 per cent.
The dollar index, which tracks the currency against a basket of six peers, gained 0.5 per cent 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 1.2 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.
In Europe, the region-wide Stoxx 600 lost 0.2 per cent and the FTSE 100 was down 0.3 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.
