Stocks and commodities climbed as investors bet that US politicians will be able to negotiate a solution to the debt-ceiling standoff, with President Joe Biden voicing optimism that a deal could be reached.
The US debt ceiling remains the biggest focus for investors this week and strategists are warning about market turmoil and economic disaster if politicians don’t agree to raise the government’s $31.4 trillion borrowing limit. Joe Biden, House Speaker Kevin McCarthy and other congressional leaders are planning to hold further talks on Tuesday. They were previously scheduled to meet on Friday, but postponed it as staff level discussions continued throughout the weekend.
“When you look from afar in Europe at American politics right now it is difficult to see how they get to common ground, but the alternative is so bad maybe it forces that ground to be found,” said Luke Hickmore, investment director at Abrdn. “The risks are still there for sure.”
The showdown in Washington is just one of many risks keeping investors sidelined, from recession to cracks in the banking system to disappointed hopes for a turn to easier monetary policy. The S&P 500’s decline of 0.3% last week marked the sixth straight week without a 1% move — the longest stretch of inertia since late 2019.
“There’s quite a fair bit of ongoing risk in the market,” Audrey Goh, senior cross asset strategist at Standard Chartered Wealth Management Group, said in an interview on Bloomberg Television. “The debt-ceiling talks are still in the making, at the same time we’ve also got inflation still quite elevated. There could be further downside from here where equity markets are concerned.”
In other markets, the Turkish lira weakened as the country’s presidential election looked set for a runoff vote in two weeks. Losses were cushioned by state banks that earlier intervened to support the exchange rate, according to people familiar with the matter. The Thai baht rallied after pro-democracy parties emerged as the biggest winners in Sunday’s election.
New York Fed’s John Williams speaks at monetary policy research conference in Washington, and Fed Chair Jerome Powell and former chair Ben Bernanke to take part in panel discussion on Friday.