Stock markets mostly advanced Friday on talk of progress in talks to avert a calamitous US default draws closer and data showing.
Wall Street opened higher, with the Dow adding 0.1 percent, despite data showing US inflation rising in April, increasing the chances of another interest rate hike in June.
European stocks were higher in afternoon trading, with most Asian markets finishing the day higher.
“There are reports this morning that a deal could be close that caps federal spending for two years in exchange for raising the debt ceiling,” said Briefing.com analyst Patrick O’Hare.
However, he warned that once negotiators reach a deal, it must still get through the House and Senate, with some lawmakers possibly disappointed by the terms of the eventual deal.
“With the clock ticking on those debt ceiling negotiations and Congress having closed up for a long weekend break, there’s without doubt a degree of caution building over what happens next,” noted Scope Markets analyst Joshua Mahony.
Markets have taken a hit in recent days on worries about the slow pace of negotiations in Washington, even after President Joe Biden and House Speaker Kevin McCarthy expressed optimism earlier in the week.
On Thursday, Biden reiterated his pledge that “there will be no default” despite the wrangling, adding that talks with McCarthy, who leads the Republican negotiators, had been “productive”.
The speaker also expressed his determination to get an agreement to raise the borrowing limit by June 1, when the Treasury has warned the government is expected to run out of cash to service its debts.
Pressure for a deal was ramped up after Fitch placed the country’s AAA-ranked credit on “rating watch negative” owing to the standoff.
There is still plenty of rancour on Capitol Hill, with some Republicans questioning whether the United States is even likely to default at all, despite warnings about the potential economic chaos it would cause.
For their part, Democrats are reluctant to cut social spending.
Still, the broad consensus is for the borrowing limit to eventually be raised at the 11th hour, after a period of brinkmanship.
In another source of concern, data showed the US Federal Reserve’s preferred measure of inflation — the personal consumption expenditures (PCE) index — rose 4.4 percent year-on-year in April, up from 4.2 percent a month earlier. The core index, excluding volatile food and energy prices, also rose, as did personal income and spending.
The data “will give the Fed some pause about pausing its rate hikes in June,” said O’Hare.
He said that following the release of the data that futures market is now pricing in the Fed hiking interest rates by 0.25 percentage points next month.
Earlier this month the Fed signalled it will take a “data dependent” approach as to whether it needs to hike interest rates further to squash inflation, with markets hoping for a pause in interest rates.
Asian markets mostly rose on Friday, with Tokyo leading the way thanks to a weaker yen and softer inflation that had traders betting the Bank of Japan would not tighten monetary policy any time soon.
The dollar on Thursday broke past 140 yen for the first time since November, with strong US data fanning expectations the Federal Reserve will hike interest rates again next month.
– Key figures around 1330 GMT –
New York – Dow: UP 0.1 percent at 32,804.05 points
London – FTSE 100: UP 0.5 percent at 7,606.63
Paris – CAC 40: UP 0.8 at 7,283.63
Frankfurt – DAX: UP 0.6 percent at 15,882.75
EURO STOXX 50: UP 0.8 at 4,305.62
Tokyo – Nikkei 225: UP 0.4 percent at 30,916.31 (close)
Hong Kong – Hang Seng Index: Closed for a holiday
Shanghai – Composite: UP 0.4 percent at 3,212.50 (close)
Euro/dollar: UP at $1.0733 from $1.0725 on Thursday
Pound/dollar: UP at $1.2360 from $1.2321
Dollar/yen: UP at 140.17 yen from 140.06 yen
Euro/pound: DOWN at 86. pence from 87.04 pence
West Texas Intermediate: UP 1.5 percent at $72.89 per barrel
Brent North Sea crude: UP 1.2 percent at $77.20 per barrel