A look at the day ahead in U.S. and global markets from Mike Dolan
As the AI-led tech stock boom unfolds, there's light at the end of the U.S. debt ceiling saga - only markets now reckon the Federal Reserve will tighten policy even further this summer.
Investors juggled these three strands over the past 24 hours, with top-line equity index relief from the Nvidia-inspired spur to artificial intelligence and chip stocks everywhere.
More broadly, there were signs the U.S. economy is still sailing through the choppy waters - at least without any major disturbance to the labor market yet. And the banking stress that changed the picture in March appears to be settling too, judging by the latest central bank numbers.
Encouraged by more hawkish policymakers this week, the upshot has been a remarkable rethink of Fed policy horizon that now has futures markets almost fully pricing another quarter point rate hike to the 5.25-5.50% range by the end of July.
And it is not alone. Bamboozling the British gilts and sending bond yields soaring after another dire UK inflation readout this week, the Bank of England is now expected to raise its rates four more times to 5.5% this year too. Buoyant retail figures for April out on Friday won't stand in their way.
Friday brings some hope that White House and congressional leaders can ink a deal on lifting the U.S. debt ceiling they indicated overnight was now close - just before the Treasury Department runs out of cash from June 1 next week.
Reuters sources said the two sides, who met virtually on Thursday, are just $70 billion apart on a total discretionary spend by government of over $1 trillion.
It's unclear precisely how much time Congress has left to act. Even though the Treasury Department insists June 1 is the deadline, it said on Thursday it would sell $119 billion worth of debt that will come due on that date - suggesting to some market watchers that it was not an iron-clad deadline.
Anxieties in the Treasury bill market only eased a touch, and one-month bill yields remained above 6% early Friday.
And the persistent elevation of the rest of the near-term yield curve is due both to the new Fed rate rise pricing and expectations that, even if the debt ceiling is raised, the Treasury Department will have to rush to issue up to $1 trillion of new debt securities to meet short-term funding needs.
On Fed thinking at least, the release later on Friday of the April personal income expenditures (PCE) inflation gauge will be the dominant data publication ahead of a long weekend state-side.
The resurgent U.S. dollar gave back some of this week's sharp gains around the world on Friday.
Calming down a bit from Thursday's Nvidia spur, S&P500 stock futures were flat going into the open - with bourses around the world modestly higher.
As an indication of just how tech-focused this year's stocks rally has been, the FANG+TM index of 10 leading digital, chip and tech names is up 55% so far in 2023 while the Russell 2000 of mostly small cap U.S. stocks is unchanged.
That said, Nvidia's 25% surge sent the whole chip sector soaring on Thursday. The Philadelphia SE Semiconductor index jumped almost 7% to its highest level in more than a year in its biggest daily rise since November.
And shares in Marvell Technology surged 17% overnight after it forecast its AI revenue would double for the year, becoming the second U.S. chip company in as many days to bet on the breakthrough technology.
Events to watch for later on Friday:
* U.S. April personal spending, income and PCE inflation gauge; April durable goods orders; April goods trade balance and wholesale and retail inventories; Kansas City Federal Reserve's May services index
* Debt ceiling negotiations
(By Mike Dolan, editing by Emelia Sithole-Matarise; mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)