Stocks Rise, Treasuries Fall on Debt-Ceiling Deal: Markets Wrap

  • Trump accepts three-month delay as part of Harvey aid package
  • Fischer Fed resignation leaves big open questions for year-end

What Interim Debt-Limit Fix Means for Tax Reform

U.S. stocks pushed higher while longer-term government debt fell after lawmakers reached a deal with President Donald Trump to extend the U.S. debt limit and fund the government through mid-December.

The S&P 500 Index added to its gains after Democratic congressional leaders announced the agreement, which also includes aid to victims of Hurricane Harvey. Ten-year Treasury yields jumped, while shorter-term bills showed a mixed reaction. Yields on bills maturing on Oct. 5 and Oct. 12 fell as much as 12 basis points but December yields climbed, as investors anticipated a rerun of the debt drama that roiled markets in recent weeks.

While the agreement mitigates one threat facing financial markets, plenty of other unresolved matters loom on the horizon. Federal Reserve Vice Chairman Stanley Fischer resigned effective next month after three years at the U.S. central bank. His departure “adds further uncertainty to the already murky outlook for the future of the central bank’s leadership,” according to Royce Mendes, an economist at CIBC. 

This week will see a raft of central bank speakers and economic decisions and data. Chief among them is Mario Draghi, who may give more clarity on winding down the European Central Bank’s bond-buying program when he speaks after a policy decision on Thursday. U.S. unemployment claims and the release of the Fed’s Beige Book are also on the way. Federal Reserve speakers so far have continued to urge caution on tightening policy.

The loonie jumped to a two-year high against the U.S. dollar after Canada’s central bank raised its benchmark interest rate to 1 percent. The euro was little changed despite an unexpected decline in German factory orders. Then yen saw its biggest drop in over two weeks; the pound advanced.

While Hurricane Irma threatens Florida and the cleanup from Harvey continues, Trump is scheduled to appear at a tax event in North Dakota. The president is expected to focus on the state’s history of cross-party support for reductions to the tax rate, according to speech excerpts provided by the White House.

The hurricanes could “help the children get along in the sandbox because the country is going to have to work together on relief and other things could get done that could stimulate the economy,” said Brian Belski, chief investment strategist at BMO Capital Markets. North Korea remains the biggest threat because it’s a “very binary” situation that markets are “unable to discount,” he said.

Automakers helped spur a recovery for the Stoxx Europe 600 Index after equities slid from Hong Kong to Sydney as traders girded for a potential intercontinental ballistic missile launch by Pyongyang.  Data showed Australia’s economy grew less than forecast in the second quarter, and the Reserve Bank of Australia left its benchmark rate unchanged.

Terminal subscribers can read more on our Markets Live blog.

The key events coming this week:

  • China trade figures this week are anticipated to show another month of solid export growth, while FX reserves probably continued to rise on stricter capital controls, robust growth and a stronger yuan, according to Bloomberg Intelligence.
  • The European Central Bank meets on Thursday. Mario Draghi will express concern over the euro’s strength, but won’t say much about his asset-purchase program’s future, according to a survey.

And here are the main moves in markets:

Stocks

  • The S&P 500 Index rose 0.31 percent to 2,465.57 as of 4 p.m. New York time.
  • The Stoxx Europe 600 Index increased 0.1 percent. 
  • Germany’s DAX Index increased 0.7 percent 
  • The U.K.’s FTSE 100 Index fell 0.3 percent. 

Currencies

  • The Bloomberg Dollar Spot Index decreased 0.1 percent. 
  • The euro was unchanged at $1.1914. 
  • The British pound advanced 0.1 percent to $1.304. 
  • The Japanese yen fell 0.5 percent to 109.32 per dollar.
  • The Canadian dollar surged 1.2 percent to C$1.225 per U.S. dollar, the strongest in more than two years.

Bonds

  • The yield on 10-year Treasuries advanced four basis points to 2.10 percent. 
  • Germany’s 10-year yield increased one basis point to 0.35 percent. 
  • Britain’s 10-year yield fell two basis points to 1.005 percent.

Commodities

  • Gold fell 0.4 percent to $1,334.12 an ounce. 
  • West Texas Intermediate crude advanced 1 percent to $49.13 a barrel. 
  • The Bloomberg Commodity Index gained 0.4 percent to 85.72, the highest in more than 20 weeks.

Asia

  • Japan’s Topix index reversed earlier losses to end up 0.1 percent. The Kospi index in South Korea slid 0.3 percent as did Australia’s main gauge. The Hang Seng Index declined 0.5 percent in Hong Kong on low volumes and China’s equity benchmarks were also lower.

— With assistance by Samuel Potter, Andreea Papuc, and Luke Kawa

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