(Bloomberg) — Asian shares rose after US President Joe Biden said relations with China are expected to improve “very shortly,” and as the market awaited possible progress in US debt-limit talks.
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Hong Kong’s Hang Seng Index jumped more than 1%, led by technology shares. Historically cheap valuations following consecutive weekly declines added further support. The advance led in a region-wide rally that including Japanese and mainland China shares but excluded Australian blue chips.
“I think you’re gonna see that begin to thaw very shortly,” between the US and China, Biden said on Sunday after a Group-of-Seven summit in Japan. He added that his administration was considering whether to lift sanctions on Chinese Defense Minister Li Shangfu.
South Korea’s Kospi gained as much as 1%, on track for its sixth daily advance. Samsung Electronics Co. and SK Hynix Inc. were among the biggest contributors to the benchmark after China said their US rival Micron Technology Inc. had failed to pass a cybersecurity review.
Contracts for the S&P 500 edged lower, while those for the Nasdaq 100 were flat after the two benchmarks registered small declines on Friday. Contracts for the Euro Stoxx 50 stayed in a narrow range.
The yen and the Swiss franc rose against most of their major peers, reflecting a degree of demand for havens. A gauge of the dollar crept lower while South Korean won led the gains among emerging-market currencies. Treasuries gained.
Debt Talks
President Biden and House Speaker Kevin McCarthy are scheduled to meet in Washington Monday following a “productive” call between the pair over the weekend. Yet one Republican negotiator is insisting on a multi-year spending limit, complicating talks even as default could come as soon as June 1.
Even though the debt limit deadline is more than a week away, the effective deadline for a deal may be much sooner. That’s because lawmakers have to pass whatever Biden and McCarthy can agree to, and that process may take several days.
McCarthy said last week that in order to meet a June 1 deadline the House would have to vote this week on any compromise plan. The Senate would take up the legislation afterward, before it goes to Biden’s desk to be signed into law.
Stocks are primed to drop if the US fails to raise the debt limit and delays government payments, according to UBS strategists. Although it’s unlikely, if the US formally defaults and delays all payments beyond principal payments for a week, the S&P 500 will fall as much as 20% toward 3,400, the team led by Jonathan Pingle said.
Fed Pause
Traders also remain fixated on the path for Fed’s benchmark rate, with bets for a hike in June trimmed to 25% as Jerome Powell signaled a pause. Minneapolis Fed President Neel Kashkari also said he may support a pause, Dow Jones reported.
“Market pricing is firmly back to thinking the Fed will pause,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a research note. “The US debt ceiling, and the price action in US banks, are going to dominate the narrative.”
Meanwhile in India, shorter-maturity bonds rallied on bets a withdrawal of the nation’s highest value currency note would leave banks with surplus cash to invest.
Iron ore retreated on uncertainty about demand from China. Oil extended a two-day drop and gold was flat following a 1% gain on Friday. Bitcoin fell, remaining below $27,000.
Key events this week:
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Eurozone consumer confidence, Monday
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Fed presidents speaking are James Bullard, Raphael Bostic and Thomas Barkin, Monday
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Eurozone S&P Global Eurozone Manufacturing & Services PMI, Tuesday
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US new home sales, Tuesday
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Dallas Fed President Lorie Logan speaks, Tuesday
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Fed issues minutes of May 2-3 policy meeting, Wednesday
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Bank of England Governor Andrew Bailey speaks, Wednesday
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US initial jobless claims, GDP, Thursday
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Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
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Tokyo CPI, Friday
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US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 1:39 p.m. Tokyo time. The S&P 500 fell 0.1% Friday
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Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.2% Friday
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Japan’s Topix index rose 0.3%
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Australia’s S&P/ASX 200 Index fell 0.2%
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Hong Kong’s Hang Seng Index rose 1.3%
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China’s Shanghai Composite Index rose 0.1%
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Euro Stoxx 50 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro rose 0.2% to $1.0822
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The Japanese yen rose 0.2% to 137.71 per dollar
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The offshore yuan fell 0.1% to 7.0351 per dollar
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The Australian dollar was unchanged at $0.6651
Cryptocurrencies
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Bitcoin fell 0.5% to $26,716.96
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Ether was little changed at $1,804.74
Bonds
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The yield on 10-year Treasuries declined two basis points to 3.65%
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Japan’s 10-year yield declined 1.5 basis points to 0.38%
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Australia’s 10-year yield declined one basis point to 3.58%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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