- Global equities headed for a weekly loss
- Japan’s Nikkei hopes for a seven-week winning streak
- Treasury bonds rally on hopes of an agreement on the US debt ceiling
- US PCE inflation data ahead of Wall Street
LONDON, May 26 (Portal) – Global stock markets were subdued on Friday and investors held their breath as the White House and US lawmakers moved closer to an agreement on funding government spending to avoid an economic default.
US President Joe Biden and leading Republican Congressman Kevin McCarthy are nearing an agreement that would raise the government’s $31.4 trillion debt ceiling for two years while limiting spending on most items.
The dollar retreated from a two-month high and helped boost gold prices, although the yellow metal faced a third straight weekly decline as markets await a debt ceiling deal.
Oil prices remained broadly stable, while the dollar stayed near a two-month high against its main peers, buoyed by expectations that US interest rates could stay higher for longer.
“This week was somewhat of a wake-up call for interest rate expectations. There is a realization that inflation is here to stay for much longer,” said Mike Hewson, chief markets strategist at CMC Markets.
US personal consumption expenditure (PCE) data, often referred to as the Federal Reserve’s preferred measure of inflation, is expected ahead of Wall Street’s opening bell.
The MSCI All Country Stock Index (.MIWD00000PUS) rose 0.15% but faced a 1.4% loss for the week. In Europe, the STOXX (.STOXX) index of 600 companies rose 0.2% over the week but fell 2.5%.
Traders took a step back from frantic buying of chip and AI stocks that had been frantic for several days after a mega forecast from Nvidia Corp (NVDA.O) boosted the Nasdaq on Thursday.
“There is still some nervousness and concern about the debt ceiling until we see that deal going through there,” said Eren Osman, managing director of asset management at Arbuthnot Latham & Co.
“Once that’s sorted out, let’s really focus on the gap that widened in manufacturing and services data earlier this week. That’s the red flag out there for us…we’ve used that to reduce our exposure to cyclicals.” “Improving parts of the market and reducing risk in general,” Osman said.
S&P 500 futures were down 0.1%.
Interest Rates in Developed Markets
Japan’s Nikkei (.N225) lagged behind these gains, rising 0.6% as sales and production gains from US chipmaker Nvidia (NVDA.O) brought more exposure to Japanese companies.
The Nikkei is up 0.5% this week and is heading for a seventh consecutive weekly gain — the longest weekly gain in five years and one that has given Japanese equities around $460 billion.
The US dollar index hit a three-month high of 104.31 overnight and was last seen at 104.01, down 0.2%.
Treasury bond prices maturing on the so-called X-date, June 1st, rallied on hopes of a break, while the rest of the curve suffered as investors also feared US interest rates could rise.
Two-year government bond yields in Asia hit a two-and-a-half-month high of 4.552% on Friday, up 24 basis points on the week. In European trading, yields slipped slightly to 4.487%.
The New Zealand dollar was a big loser this week, falling 3% to a test level of 60 cents as jitters over higher US interest rates have gathered and the Reserve Bank of New Zealand came close to announcing rate hikes at its meeting on Wednesday.
The Chinese yuan was the other notable casualty, falling along with Chinese stocks as expectations of a booming post-pandemic recovery dimmed.
The yuan has declined for three consecutive weeks, shedding about 0.8% this week to hit lows not seen since China late last year when COVID lockdowns were under control. It was last seen at 7.0467 per dollar as investors worried about the economic outlook.
“The US debt problems are not the only ‘ceiling’ we are dealing with, as slowing Chinese economic data suggests a cap on growth may also be forming,” said George Davis, technical strategist at RBC.
The copper growth indicator hit a six-month low in Shanghai on Thursday, down about 2.5% week-on-week. Singapore’s iron ore is down about 3% week-on-week.
Brent crude futures are steady at around $76 a barrel. The spot price of gold is $1,953 per ounce.
Additional reporting by Tom Westbrook, edited by Lincoln Feast, Robert Birsel
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