Stocks climbed on signals that American lawmakers are making progress on debt-ceiling talks and will be able to avert a first-ever default. Treasury yields rose on speculation the Federal Reserve will need to keep rates higher for longer as inflation remains elevated. 

The S&P 500 closed at a nine-month high while the Nasdaq 100 rallied almost 2 per cent — hitting the highest since April 2022. House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer making plans for votes in the coming days on a bipartisan deal to avert a U.S. debt default. Equities briefly pared gains after House Financial Services Chairman Patrick McHenry said the two sides are “not close to being done.”

“We could see some volatility over the negotiations in the coming days,” said Dan Clifton at Strategas. “Negotiators are not only trying to get a deal quickly, but the effort is to get a complete deal so that only one debt ceiling increase is needed.”

STOCKS, LIQUIDITY AND TGA

As the U.S. cash flow position deteriorates, Clifton also highlighted the impact of larger liquidity injections on the market.

“As tax revenues underperform, Treasury is spending down the Treasury General Account. This is leading to more liquidity and, not coincidentally, Nasdaq outperforming the S&P 500,” he added.

The swap market showed bets on a June hike climbed to about 40 per cent after Fed Bank of Dallas President Lorie Logan said the case for a pause next month is not clear. In contrasting remarks, central bank Governor Philip Jefferson outlined the dovish case for patience. The two-year bond yield, which is more sensitive to imminent Fed moves, topped 4.2 per cent and climbed toward the highest in a month.

The Fed is “in a really tough spot,” Katerina Simonetti at Morgan Stanley Private Wealth Management, told Bloomberg Television. “The big decision for them is the timing because once they announce that they’re done raising rates, markets are just going to assume that they’ve succeeded. And it might not necessarily be the case. Inflation so far is proving to be sticky.”

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

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.9 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.8 per cent
• The Dow Jones Industrial Average rose 0.3 per cent
• The MSCI World index rose 0.6 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.6 per cent
• The euro fell 0.6 per cent to US$1.0774
• The British pound fell 0.6 per cent to US$1.2410
• The Japanese yen fell 0.7 per cent to 138.69 per dollar

Cryptocurrencies

• Bitcoin fell 2.2 per cent to US$26,749.92
• Ether fell 1.7 per cent to US$1,795.95

Bonds

• The yield on 10-year Treasuries advanced eight basis points to 3.65 per cent
• Germany’s 10-year yield advanced 11 basis points to 2.45 per cent
• Britain’s 10-year yield advanced 12 basis points to 3.96 per cent

Commodities

• West Texas Intermediate crude fell 1.2 per cent to US$71.99 a barrel
• Gold futures fell 1.2 per cent to US$1,978.70 an ounce