Europe stocks up as debt deal prospects lift mood

BLOOMBERG 

Markets turned higher after days of anxiety that an impasse in Washington would push the US into an unprecedented default, spurring bets that the world’s biggest economy can also skirt an economic slump.
European stocks rose, following a rally on Wall Street, as hopes built for an eventual breakthrough in talks to raise the debt limit before coffers run dry on June 1. Autos, technology and banks led the advance in Europe, although BT Group Plc slumped as much as 10% after the UK’s biggest network operator said it plans to cut its labour force by as much as 42% by the end of the decade.
The lighter mood reflects both the progress in Washington and some good news out of embattled US regional lenders. Bank stocks rebounded after Western Alliance Bancorp reported an increase in deposits, easing concern that the industry will succumb to losses on bond investments and a flight by depositors. Taken together, they’re keeping hopes alive that the US will avert a recession and giving way to soft-landing bets after one of the most aggressive Fed tightening cycles in history.
“If the headwinds of banking crisis and debt ceiling recede and consumers stays reasonably resilient, the recession risk may recede,” said Roger Lee, head of UK equity strategy at Investec Bank Plc.
Wagers on a relief rally were reflected in the CBOE VIX index of equity market volatility, which fell below 17 to close at the lowest level since the start of the month. In Europe, markets in Nordic countries and Switzerland were closed for holidays on Thursday.
An index of dollar strength headed for a third day of gains, while Treasuries were little changed. The rate-sensitive two-year yield traded above 4%, reflecting soft-landing bets.
President Joe Biden expressed confidence there will be no US default, and House Speaker Kevin McCarthy said reaching an agreement is “doable.” JPMorgan Chase & Co chief Jamie Dimon said the US government “probably” will not default on its debt after he and other bank leaders met in Washington to discuss the debt limit.
Investor attention turns to initial US jobless claims data, which could provide clues on what the Federal Reserve intends to do next in its monetary policy tightening campaign. Earnings due from Walmart Inc will provide insights on the state of the economy and the American consumer.
The Stoxx Europe 600 rose 0.5% in London and S&P 500 futures were little changed. While Nasdaq 100 futures rose 0.1%, futures on the Dow Jones Industrial Average were little changed and the MSCI Asia Pacific Index rose 0.7%. The MSCI Emerging Markets Index rose 0.4%. The Bloomberg Dollar Spot Index rose 0.3% and the euro fell 0.2% to $1.0816.
While the Japanese yen was little changed at 137.78 per dollar, the offshore yuan fell 0.6% to 7.0487 per dollar and the British pound fell 0.4% to $1.2439. Bitcoin rose 0.2% to $27,391.86 and ether was little changed at $1,827.75.
The yield on 10-year Treasuries advanced two basis points to 3.58% and Germany’s 10-year yield advanced six basis points to 2.39%. Britain’s 10-year yield advanced four basis points to 3.87%.