European shares rose on Thursday and Wall Street was set to open higher, as traders bet that politicians in the United States would reach a deal to avoid a debt default.
Wall Street closed sharply higher on Wednesday and the positive market sentiment continued during Asian trading, with Japan’s Nikkei hitting a new 20-month high, after President Joe Biden and top U.S. congressional Republican Kevin McCarthy expressed their determination to reach a deal soon to raise the government’s $31.4 trillion debt ceiling.
At 1140 GMT, the MSCI world equity index was up 0.2% on the day (.MIWD00000PUS). Europe’s STOXX 600 was up 0.6% (.STOXX) and London’s FTSE 100 was up 0.5% (.FTSE). Germany’s DAX climbed to its highest in more than a year (.GDAXI), reported Reuters.
Euro zone government bond yields also got a lift from the positive market sentiment, with the benchmark German 10-year yield at a 16-day high of 2.414%.
But Wall Street futures were just a touch higher. S&P 500 futures were up 0.2% while Nasdaq futures were up 0.3%. US Treasury yields rose, with the US 10-year yield at 3.5982% .
Kiran Ganesh, a multi-asset strategist at UBS, said markets were taking confidence from Biden’s decision to cut short a trip to Asia in order to return to Washington on Sunday, and McCarthy saying that a deal this week was “doable”.
“Default is one of those low-probability, high-impact events,” Ganesh said.
“Maybe that low probability got even lower, and removing that tail risk is a positive, because of course if you did get a default or delayed payments then that would likely tip the U.S. into recession.”
The U.S. dollar index was up 0.2% at around 103.09 , having hit as high as 103.17 earlier in the session. It reached its strongest since December against the Japanese yen, at 137.935 . Euro-dollar was down around 0.2%, at $1.08155.
China’s yuan hit its weakest against the dollar since December, hurt by signs that the country’s post-Covid economic recovery is slowing.