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Wall St set to open higher, European shares boosted by debt deal hopes

Agencies . Tokyo
19 May 2023 00:00:00 | Update: 19 May 2023 22:55:15
Wall St set to open higher, European shares boosted by debt deal hopes

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.