Stocks Rise as Hope Grows for U.S. Debt Ceiling Deal, Averting Default

　　

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Stocks experienced a positive surge as investors remained hopeful that an agreement on the U.S. debt ceiling could be reached between congressional leaders and President Joe Biden, thereby averting a catastrophic default. The Dow Jones Industrial Average rose by 408.63 points or 1.24%, reaching 33,420.77, while the S&P 500 increased by 1.19% to 4,158.77, and the Nasdaq Composite advanced 1.28% to 12,500.57. Following a meeting with Biden, House Speaker Kevin McCarthy stated that progress had been made and a potential deal could be reached by the end of the week. Biden canceled part of an international trip to focus on the negotiations, expressing confidence in avoiding a default.

Concerns regarding a potential default had been impacting the markets, with the Dow experiencing a 2% decline this month, including a 1% drop on Tuesday. Treasury Secretary Janet Yellen emphasized the immediate need to raise the debt limit, as the country faced the risk of defaulting as early as June 1. The market sentiment improved on Wednesday as regional bank shares rebounded, particularly Western Alliance Bancorp, which reported positive deposit growth. This led to a 10.2% surge in Western Alliance’s stock and a more than 7% increase in the SPDR S&P Regional Bank ETF (KRE), contributing to the overall positive market trend.

Data by Bloomberg

On Wednesday, all sectors experienced an overall positive performance in the market. The financial sector led the gains with a significant increase of 2.09%, followed closely by the energy sector at 2.07%. Consumer discretionary stocks also saw a notable rise of 2.04%, while industrials recorded a gain of 1.70%. Real estate and information technology sectors both contributed to the positive trend, rising by 1.29% and 1.28% respectively. Communication services also saw a modest increase of 1.18%. However, the materials sector showed a relatively lower growth of 0.67%.

In contrast, the health care sector had a marginal gain of 0.10%, while consumer staples experienced a slight decline of -0.10%. The utilities sector saw a relatively larger decrease of -0.36%. Overall, Wednesday’s market performance indicated a broad positive sentiment, particularly driven by strong performances in the financial, energy, and consumer discretionary sectors.

Major Pair Movement

The dollar initially strengthened on Wednesday due to rising Treasury yields but later lost some of its gains as risk-on sentiment increased. The yen was the exception, weakening broadly against the dollar. The Japanese currency fell 0.9% against the dollar as USD/JPY approached key resistance levels.

EUR/USD experienced a rebound from its lows, although it still declined by 0.2%. Market expectations for aggressive rate cuts by the Federal Reserve in the second half of the year decreased, while the European Central Bank’s rate hike expectations remained limited. Concerns over euro zone data and a weaker reopening in China impacted demand prospects. The U.S. inflation rate remained high, and the Federal Reserve is monitoring it closely. Sterling, being more sensitive to risk, recovered to near-flat levels from its recent lows.

In addition to the ongoing U.S. debt ceiling negotiations, Thursday’s focus will be on U.S. initial jobless claims, with a decrease anticipated. The outcome of these claims will impact the dollar. Other key data to be released on Thursday includes the Philly Fed index and existing home sales.

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