May 26, 2023
Tech extends rally as traders await U.S. debt deal
BNN Bloomberg's mid-morning market update: May 26, 2023
The frenzy surrounding artificial intelligence led another day of gains in the stock market on Friday as traders were also growing more confident a deal on the U.S. debt limit would be reached.
The S&P 500 rose 1.3 per cent and the tech-heavy Nasdaq 100 added 2.6 per cent as Marvell Technology Inc. said 2024 revenues would “at least double” from a year ago on a surge in demand from AI, echoing sentiments from rival chipmaker Nvidia Corp. earlier in the week.
The gains came as U.S. negotiators also appeared to be moving closer to an agreement to raise the U.S. debt limit and cap federal spending for two years. A U.S. default could result in catastrophic damage, putting markets on edge. However, House Speaker Kevin McCarthy said he believed progress had been made last night.
“Today we are getting a boost from debt ceiling headlines plus continued AI enthusiasm,” said John Kolovos, chief technical strategist at Macro Risk Advisors.
Investors were demanding less of a premium to hold U.S. Treasury bills seen most at risk of nonpayment if a deal isn’t reached in time. Securities expiring in early June — when Treasury Secretary Janet Yellen warned the government could run out of money — are all yielding less than 6 per cent on Friday.
Meanwhile, the rate-sensitive two-year Treasury drifted as traders considered how a debt deal could play into the Federal Reserve’s path forward on interest rates. The two-year yield hovered around 4.56 per cent after a report on consumer spending showed the Fed still has more work to do to bring inflation back toward its target. The personal consumption expenditures price index, one of the Fed’s preferred inflation gauges, rose by a faster-than-expected 0.4 per cent in April.
“While we believe that there are good chances for a [debt] resolution before the FOMC meeting, any deal would almost certainly include some fiscal tightening, which should reduce the need for the Fed to hike rates,” said Brian Rose, senior U.S. economist at UBS Chief Investment Office. “Going past the debt ceiling deadline would have serious consequences, and in that event there is almost no chance that the Fed would hike.”
In other corporate news, retailer Gap Inc. rallied 12 per cent after reporting better-than-expected results. Workday Inc. jumped 10 per cent after results at the application software company pointed to stable demand. And Ford Motor Co. rose 6.2 per cent after striking a deal with Tesla Inc. to give its electric vehicle customers access to the Tesla Supercharger network.
Elsewhere in Europe, the Stoxx 600 rose with chipmakers including ASML Holding NV advancing for a second day. Glencore Plc gained after a report that its Viterra unit is in talks to merge with Bunge Ltd., one of the world’s largest crop merchants. And in Asia, the benchmark CSI 300 index ended little changed, bringing the week’s losses to 2.4 per cent amid growth concerns.
The S&P 500 rose 1.3 per cent as of 4:03 p.m. New York time
The Nasdaq 100 rose 2.6 per cent
The Dow Jones Industrial Average rose 1 per cent
The MSCI World index rose 0.2 per cent
The Bloomberg Dollar Spot Index fell 0.2 per cent
The euro was little changed at US$1.0729
The British pound rose 0.3 per cent to US$1.2352
The Japanese yen fell 0.4 per cent to 140.57 per dollar
Bitcoin rose 1.1 per cent to US$26,774.72
Ether rose 1.4 per cent to US$1,834.97
The yield on 10-year Treasuries declined two basis points to 3.80 per cent
Germany’s 10-year yield advanced two basis points to 2.54 per cent
Britain’s 10-year yield declined four basis points to 4.33 per cent
West Texas Intermediate crude rose 1.3 per cent to US$72.77 a barrel
Gold futures rose 0.2 per cent to US$1,965.40 an ounce