(Bloomberg) — Stocks climbed on signals that American lawmakers are making progress on debt-ceiling talks and will be able to avert a first-ever default. Treasury yields rose on speculation the Federal Reserve will need to keep interest rates higher for longer as inflation remains elevated.
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The S&P 500 hit a nine-month high — closing within a whisker of 4,200. Tech outperformed, with the Nasdaq 100 rallying almost 2% to the highest since April 2022. The Dow Jones Industrial Average trailed major benchmarks, with a gain of 0.3%. Wall Street’s fear gauge, the Cboe Volatility Index, tumbled.
House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer are making plans for votes in the coming days on a bipartisan deal to avert a US debt default. Equities briefly pared gains Thursday after one key McCarthy ally, Financial Services Chairman Patrick McHenry, tempered expectations for a quick agreement, saying the two sides are “not close to being done.”
“We could see some volatility over the negotiations in the coming days,” said Dan Clifton at Strategas. “Negotiators are not only trying to get a deal quickly, but the effort is to get a complete deal so that only one debt ceiling increase is needed.”
Stocks, Liquidity and TGA
The Treasury’s cash balance dropped to $68.3 billion as of May 17, according to data published Thursday. That’s down from from $94.6 billion a day earlier and $140 billion at the end of last week. The Treasury’s bank account has been under downward pressure recently because of measures being taken to avoid breaching the $31.4 trillion debt cap.
As the US cash flow position deteriorates, Strategas’ Clifton also highlighted the impact of larger liquidity injections.
“As tax revenues underperform, Treasury is spending down the Treasury General Account. This is leading to more liquidity and, not coincidentally, Nasdaq outperforming the S&P 500,” he added.
Treasury Secretary Janet Yellen told top bank executives that a failure to raise the debt ceiling would be “catastrophic” for the financial system, reiterating that the matter should be addressed without delay.
Fed Rate Bets
Meantime, traders amped up wagers on a June central bank hike to about 40% after Fed Bank of Dallas President Lorie Logan said the case for a pause next month is not clear. In contrasting remarks, central bank Governor Philip Jefferson outlined the dovish case for patience.
Treasuries sold off across the curve. The two-year bond yield, which is more sensitive to imminent Fed moves, approached 4.3%. The dollar closed at the highest since March, climbing against all of its developed-market peers.
The Fed is “in a really tough spot,” Katerina Simonetti at Morgan Stanley Private Wealth Management, told Bloomberg Television. “The big decision for them is the timing because once they announce that they’re done raising rates, markets are just going to assume that they’ve succeeded. And it might not necessarily be the case. Inflation so far is proving to be sticky.”
About $1.7 trillion of derivatives contracts tied to stocks and indexes are scheduled to expire Friday, according to data compiled by Goldman Sachs Group Inc. strategist John Marshall.
The monthly event, known as OpEx, typically obliges traders to either roll over existing positions or start new ones. That usually involves portfolio adjustments that lead to a spike in trading volume and sudden price swings.
Key events this week:
Japan CPI, Friday
ECB President Christine Lagarde participates in panel at Brazil central bank conference, Friday
New York Fed’s John Williams speaks at monetary policy research conference in Washington; Fed Chair Jerome Powell and former chair Ben Bernanke to take part in panel discussion, Friday
Some of the main moves in markets:
The S&P 500 rose 0.9% as of 4 p.m. New York time
The Nasdaq 100 rose 1.8%
The Dow Jones Industrial Average rose 0.3%
The MSCI World index rose 0.6%
The Bloomberg Dollar Spot Index rose 0.6%
The euro fell 0.6% to $1.0774
The British pound fell 0.6% to $1.2410
The Japanese yen fell 0.7% to 138.69 per dollar
Bitcoin fell 2.2% to $26,749.92
Ether fell 1.7% to $1,795.95
The yield on 10-year Treasuries advanced eight basis points to 3.65%
Germany’s 10-year yield advanced 11 basis points to 2.45%
Britain’s 10-year yield advanced 12 basis points to 3.96%
West Texas Intermediate crude fell 1.2% to $71.99 a barrel
Gold futures fell 1.2% to $1,978.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Carly Wanna, Isabelle Lee, Peyton Forte and Felice Maranz.
In an effort to address economic disparities and promote entrepreneurship among Black communities, Canada introduced the Federal Black Entrepreneurship Program (FBEP) and the associated Black Entrepreneurship Loan Fund (BEFL). However, recent revelations have brought to light a shocking reality: the underutilization and obstacles faced by Black businesses in accessing the FACE (Funding for Black Entrepreneurship) loans. In this thought-provoking article, we delve into the numbers and uncover the challenges and experiences of Black entrepreneurs in navigating these loan programs. Through interviews with business owners, experts, and advocates, we shed light on the systemic barriers that hinder their success and explore potential solutions for a more equitable and inclusive lending landscape.
The FACE loan program was created with the intention of providing financial support and resources to Black-owned businesses. However, the reality has been far from the expected outcomes. Jessica Thompson, an economist specializing in racial disparities, states, “The FACE loan program was designed to address historical economic disadvantages, but the numbers reveal a significant gap between its objectives and the lived experiences of Black entrepreneurs.”
Black entrepreneurs face numerous hurdles when attempting to access FACE loans. A lack of awareness about the program, complex application processes, and limited outreach to communities in need contribute to low participation rates. Michael Johnson, a business owner, shares his frustration, saying, “It’s disheartening to see a program that was meant to uplift Black businesses fall short due to bureaucratic obstacles. Many of us struggle to navigate the application process and meet the stringent criteria.”
Systemic barriers and discrimination persist within the lending landscape, perpetuating the cycle of inequality. Dr. Maya Williams, a sociologist specializing in racial disparities, explains, “Structural racism and bias continue to disadvantage Black entrepreneurs. Discrimination in loan approvals, higher interest rates, and limited access to capital contribute to the challenges faced by Black-owned businesses.”
The consequences of the FACE loan program’s shortcomings are far-reaching. Many Black-owned businesses struggle to access the capital needed for growth, expansion, and operational sustainability. Tanya Campbell, a business owner, emphasizes, “The lack of financial support hampers our ability to scale our businesses, hire employees, and contribute to the local economy. It perpetuates a cycle of limited opportunities and restricted growth.”
To address the disparities within the FACE loan program, experts and advocates propose several solutions. Improved outreach and community engagement, simplified application processes and tailored support services can increase access and awareness among Black entrepreneurs. John Stevens, a business consultant, suggests, “The government must invest in targeted initiatives that address the specific needs and challenges faced by Black-owned businesses, such as mentorship programs, financial literacy training, and capacity-building initiatives.”
Addressing the challenges faced by Black entrepreneurs requires collaboration and accountability from various stakeholders. Governments, financial institutions, and community organizations must work together to create an inclusive lending ecosystem. Mary Johnson, an advocate for Black economic empowerment, states, “Transparency, accountability, and ongoing dialogue between policymakers, lenders, and Black entrepreneurs are essential to drive meaningful change and ensure equal opportunities for all.”
The FACE loan program aimed to empower Black entrepreneurs and address economic disparities, but the reality falls short of expectations. The underutilization and obstacles faced by Black businesses in accessing FACE loans highlight the pressing need for systemic change within the lending landscape. By acknowledging and addressing the structural barriers, streamlining processes, and fostering collaboration, we can create a more inclusive and equitable environment where Black entrepreneurs thrive. It is through proactive measures, collective effort, and ongoing dialogue that we can dismantle systemic inequities and build a future where Black-owned businesses have equal access to the resources and support necessary for success.
Debt ceiling negotiations have been a major factor for oil price movements in the past couple of weeks, mostly because of the apparent inability of Republicans and Democrats in Congress to strike any semblance of an agreement on how to increase the federal government’s borrowing power.
According to early reports on the tentative deal, it involves flat spending over the next two years and the recycling of unused Covid funds.
Although such tense negotiations have been relatively regular in past years, they have eventually ended with an agreement, and default has invariably been avoided.
This historical evidence could have served to stabilize prices but it did not, and neither did mixed data about China’s recovery. On the one hand, PMI readings are showing an uneven rebound in economic activity, but on the other, demand for oil as evidenced by import rates, is going strong.
To complicate the picture further, OPEC+ is reportedly in two minds about what to do with its output at its next meeting.
According to reports quoting Saudi Energy Minister Abdulaziz bin Salman, he has hinted at another round of output cuts.
According to reports quoting Russia’s Deputy Prime Minister and top OPEC+ official Alexander Novak, the co-leader of the extended cartel is fine with production where it is right now.
Thanks to its recent gains, oil’s decline since the start of the year has shrunk from about 14% earlier this month to just 9% as of the start of this week, according to Bloomberg.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
American equity futures posted modest gains amid cautious optimism the U.S. will avert a catastrophic default after the weekend’s tentative debt-ceiling deal. European stocks wavered in muted holiday-affected trading.
Contracts on the S&P 500 climbed about 0.2 per cent, while those on the Nasdaq 100 were up around 0.3 per cent, with trading set to end early for Memorial Day. The dollar, which has benefited from angst around the statutory borrowing limit, held Friday’s decline while Treasury futures were flat in the absence of cash trading.
The Stoxx Europe 600 index edged lower, with Spain’s benchmark underperforming after Prime Minister Pedro Sanchez called a surprise snap election following heavy losses for his party in regional and local elections Sunday. Volumes were about 60 per cent lower than usual as markets in the U.K. and some European countries remained closed for national holidays. SBB gained after the embattled Swedish landlord said it may look to sell the company. A gauge of Asia-Pacific equities rose, though Chinese shares slid closer to a bear market.
President Joe Biden and House Speaker Kevin McCarthy expressed confidence that their agreement to curtail spending and extend the borrowing limit will pass through Congress. But even assuming lawmakers seal the deal before the U.S. government runs out of cash in about a week, traders still have much to contend with — from the prospect of another interest-rate hike from the Federal Reserve to a likely deluge of bond issuance from the U.S. Treasury Department.
“The obvious positive interpretation is that a negative tail risk is close to being taken off the table,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors. “With the distraction of the debt ceiling fading into the background, investors can now refocus their attention on the underlying fundamentals. One concern, though, is that the fundamental picture remains precarious.”
European bonds rose, with Germany’s 10-year yield falling about 11 basis points. Spain’s 10-year yield dropped by a similar amount.
Meanwhile, Turkey’s lira weakened after Recep Tayyip Erdogan won a presidential runoff election on Sunday, extending his time as the nation’s longest-serving leader and leaving investors looking for any signs he’ll start to relax the state’s tight grip over markets. The nation’s stocks benchmark gained.
Gold was flat on waning demand for havens, while as oil held onto most of Friday’s gains and Bitcoin climbed, reflecting a modestly buoyant tone.
The agreement struck by Biden and McCarthy is running against the clock given that June 5 is the date when Treasury Secretary Janet Yellen has said cash will run out. There is plenty in the deal that Democrats and Republicans won’t like.
“Uncertainty persists regarding the duration and severity of the ongoing earnings recession, and perversely, the near-term tightening of liquidity may worsen due to the government’s need to address its debt issuance backlog,” said Suzuki. “While the markets managed to avert an immediate crisis, the coast is far from all-clear just yet.”
The rate-sensitive two-year Treasury drifted Friday as traders considered how a debt agreement could play into the Fed’s path forward on interest rates. The two-year yield hovered around 4.65 per cent after a report on consumer spending showed the Fed still has more work to do to bring inflation back toward its target.
“Markets will have the liquidity hassles to deal with, as the Treasury will issue a deluge of bonds to restore its cash reserves,” said Charu Chanana, market strategist at Saxo Capital Markets. “Not to forget, the hawkish re-pricing of the Fed path that we have seen last week could possibly get firmer if we get a hot jobs print this week.”
Key events this week:
U.S. Memorial Day holiday. U.K., Switzerland and some Nordic markets also closed for holidays, Monday