Aurelia Butler

(Reuters) – Global investors are gaming out how a tentative deal to raise the United States debt ceiling could ripple through markets, as lawmakers strive to pass the agreement through Congress before a June 5 deadline. A deal to lift the $31.4 trillion debt limit announced by the White House and House Republicans late Saturday would avert a catastrophic U.S. default and boost overall appetite for risk while also buoying some of the sectors that have been left behind in this year’s tech-led rally, such as cyclical stocks and small caps, investors said. E-mini futures for the S&P 500 were up 0.5% in Sunday evening futures trading.But some investors are wary that proposed spending cuts could weigh on U.S. growth. At the same time, a negotiation process that barely avoided a default threatens to undermine the U.S. standing with credit ratings agencies.“While the White House’s debt ceiling agreement is great news, the U.S. government still has a cash flow problem and time is of the essence to finalize the agreements,” said Bob Stark, global head of market strategy at treasury and financial management firm Kyriba. “The debt ceiling agreement is only the first step in saving the government from the brink of illiquidity.”The deal suspends the debt ceiling until January 2025 in exchange for caps on spending and cuts in government programs. Narrow margins in the House and Senate mean that moderates from both sides will have to support the bill.U.S. Treasury Secretary Janet Yellen on Friday set a deadline for raising the federal debt limit, saying the government would default if Congress does not increase the debt ceiling by June 5.NEAR MISS?Since the $24.3 trillion U.S. Treasury market underpins the global financial system, a default – or even a close call – could trigger massive volatility across global markets. The uncertainty periodically weighed on stock markets over the last week, although most investors and analysts said they had expected an 11th-hour agreement. Optimism that a debt ceiling deal was near and hefty gains in AI-related stocks helped the S&P 500 close at its highest level since August 2022 on Friday. It is up 9.5% year to date. Among the market sectors that stand to benefit from a deal are defense stocks, which have lagged during the negotiations, as well as cyclical sectors of the market and energy stocks, said Quincy Krosby, chief global strategist at LPL Financial (NASDAQ:LPLA). “The hope is that the approval of this tentative deal will help underpin the broader market and not just the handful of big tech names that have kept the market well in positive territory,” she said.Stuart Kaiser, head of equity trading strategy at Citi, said a deal could be a “modest positive” for equity markets at the index level but could provide a greater boost for sectors that have lagged this year, including shares of companies with weaker balance sheets and small-cap stocks. But market participants are also wary of how proposed spending caps will impact specific sectors as well as the broader U.S. economy.“What investors will now focus on is the cost of the spending cuts to the health of the American economy,” Stark said. “How much impact will these spending cuts have on GDP and economic growth?”Meanwhile, the brinkmanship in Washington could also prompt rating agencies to downgrade U.S. debt. Ratings agency Fitch late Wednesday put the United States on credit watch for a possible downgrade while DBRS Morningstar on Thursday placed U.S. credit ratings under review with “negative implications.”S&P Global (NYSE:SPGI) Ratings stripped the United States of its coveted top rating over a debt ceiling showdown in 2011, a few days after a last-minute agreement the agency at the time said did not stabilize “medium-term debt dynamics.” The downgrade contributed to a decline in U.S. stocks that saw the S&P 500 lose some 17% between late July and mid-August of 2011.S&P Global Ratings, Fitch and Moody’s (NYSE:MCO) did not immediately respond to Reuters requests for comment.Investors are also bracing for potential volatility in U.S. government bonds as the Treasury is expected to quickly refill its empty coffers with bond issuance once the debt ceiling is raised, potentially sucking out hundreds of billions of dollars of cash from the market.”We will get the optimism that a deal is done and that a real crisis is averted, and the dreaded liquidity drain at the same time,” said Damien Boey, macro strategist at BarrenJoey in Sydney, Australia. “I think you will find that interest rate volatility will rise, and this will cause banks and non-AI growth stocks to be laggards.” More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.Optimism and relief are likely to be the dominant emotions for investors on Monday, giving markets in Asia a lift as lawmakers in Washington reached a tentative agreement on the U.S. debt ceiling, thus removing the risk of a catastrophic default.Trading and market liquidity in Asia will be lighter than usual, however, with U.S. and UK markets closed for holidays, opening up the potential for outsized market moves.If so, they are likely to be outsized gains, certainly across risk assets – Wall Street rallied strongly on Friday, particularly the Nasdaq and mega tech stocks, and the news from Washington over the weekend will only be seen as positive.After weeks of tough negotiations Republicans and Democrats reached a tentative agreement to suspend the $31.4 trillion debt ceiling, which now must get through the Republican-controlled House of Representatives and Democratic-led Senate before June 5 to avoid a crippling first-ever default.Both sides are confident it will pass. It could be a double-edged sword for Asian markets, if not on Monday than in the days and weeks ahead. A debt limit deal gives the Federal Reserve more room to tighten policy, which could push up U.S. bond yields and strengthen the dollar – not usually a good mix for emerging markets. The dollar is already on a tear, reaching a two-month high on an index basis last week and six-month peaks against the Japanese yen and Chinese yuan above 140 yen and 7.00 yuan, respectively. Japanese and Chinese policymakers are facing different challenges though.Inflation in Japan is high and sticky, and the Bank of Japan is under pressure to tweak or abandon its ultra loose ‘yield curve control’ monetary policy. Tokyo may quietly prefer the yen to strengthen from here.Beijing, on the other hand, might like the yuan to fall further. The economy’s post-pandemic lockdown recovery has been weaker than expected, to put it mildly, and inflationary pressures are evaporating. Barclays (LON:BARC) economists predict 10-20 basis points of policy rate cuts and 25-50 bps of reserve requirement ratio cuts over the next six to nine months.Japanese equity markets open on Monday near the 33-year highs reached last week, while Chinese stocks are languishing near six-month lows. So is the Hang Seng tech index, struggling under the cloud of rising U.S.-Sino trade tensions rather than benefiting from the U.S. tech boom. Perhaps that changes on Monday, if only briefly.The Asian economic data and events calendar is light on Monday but fills up later in the week, with the focus turning to Japanese unemployment on Tuesday, India’s first quarter GDP and Thailand’s interest rate decision on Wednesday, and South Korea’s Q1 GDP on Friday.Purchasing managers index reports for several countries are scheduled for release too, with China’s May data on Tuesday and Wednesday likely to be the biggest market-movers.Here are three key developments that could provide more direction to markets on Monday:- Market reaction to U.S. debt limit deal- Follow-up reaction to Nasdaq rally – Thin trading conditions due to U.S., UK holidays (By Jamie McGeever; Editing by Diane Craft) More

Recep Tayyip Erdoğan has declared victory in Turkey’s presidential election.Unofficial results show the veteran leader has won over rival Kemal Kılıçdaroğlu, although ballots are still being counted.Erdoğan had secured about 52 per cent of the vote, compared with 48 per cent for Kılıçdaroğlu, according to the state Anadolu news agency, after more than 99 per cent of ballot boxes had been opened. The results have not yet been confirmed by Turkey’s election board.A victory would launch Erdoğan’s rule into a third decade, amid a fierce opposition and fraught political and economic climate.The lira hit a record low on Friday, while the country’s dollar bonds were hit hard over the past fortnight and costs to insure against a debt default lurched higher.Investors and economists say they are particularly worried about a big slide in Turkey’s foreign exchange reserves, which accelerated ahead of the first round of elections on May 14.The opposition has warned that another five-year term for Erdoğan would send the country irreversibly down a path where democracy and human rights were steadily eroded.Here’s what I’m keeping tabs on today:Banks closed: Many financial markets are closed today across the US, UK, and other European nations for Memorial day, Spring bank holiday, and the Whit Sunday public holiday.Computex Taipei: Nvidia’s founder and chief executive Jensen Huang and Arm’s chief executive Rene Haas will deliver keynote speeches today, ahead of the Computex technology conference in Taipei.Nigeria’s new president: Former governor of Lagos state Bola Tinubu will be inaugurated as Nigeria’s president after winning the country’s disputed presidential election in February with 36.6 per cent of the vote.Five more top stories1. Russia has launched a massive drone attack on Kyiv, in what local officials described as the largest kamikaze drone attack since Moscow launched its full-scale invasion of the country 15 months ago. 2. Europe’s green transition will be impossible without China, the Dutch trade minister has warned, as the EU tries to untangle some of its economic dependence on the Asian powerhouse.3. China’s first passenger jet has completed its maiden commercial flight, in a symbolic moment for China’s technological independence after years of delays for the project4. Republican leaders tried to quell a debt deal revolt on Sunday, as both sides moved to sell their parties on a deal to prevent a looming US default.5. Mike Lynch used $50mn worth of Darktrace shares to pay for his bail as he awaits trial for fraud in the US. The billionaire founder of UK software group Autonomy faces a criminal trial in California over 17 charges including conspiracy to commit wire fraud and securities fraud.The Big Read

A worker at the blast furnace in a plant in Duisburg, Germany. Hydrogen’s potential includes replacing coal in some steelmaking processes © AFP via Getty Images

Green hydrogen has a seductive appeal. Done right, the zero-emissions energy source has the potential to penetrate many corners of the global economy and be instrumental in the fight against climate change. But there’s a catch. The FT calculated that delivering green hydrogen requires $20tn of investment by 2050 — and globally, we are only about 0.15 per cent of the way there. We’re also reading . . . Lunch with the FT: Outgoing UK cyber intelligence chief Jeremy Fleming discusses Russia’s appetite for risk, China’s quest for tech supremacy, and the James Bond effect with the FT’s Roula Khalaf.Ageing and work: Why do so many people believe we get worse at our jobs as we get older? Pilita Clark asks. Here’s what we get wrong about ageing and work.Vineyard blues: In North Canterbury, New Zealand a wine estate has been battered by nightmare weather. Jancis Robinson explores the first vineyard visit that left her feeling sad — and why.Chart of the dayCitizen juries have become more and more frequently used over the past few decades. Introducing citizens directly into political processes could not only introduce the common sense of the public into politics in a way that would be complementary to elections of political leaders, but could also help fix democracy, writes Martin Wolf. Take a break from the newsDeepfake vocal clones have arrived, and are going viral on social media. Curious about AI-generated voice copying, the FT’s pop critic Ludovic Hunter-Tilney embarked on an unlikely quest to replicate his favourite singer’s voice for the Weekend Essay. Follow — and listen to — his digital journey.Additional contributions by Tee Zhuo and Emily Goldberg More

Conservative MPs and retailers have hit out at UK government plans to encourage supermarkets to cap the price of food staples, in a fierce backlash. Health secretary Steve Barclay said on Sunday that ministers were in talks with retailers about how to “address the very real concerns” many Britons harbour about food inflation and the cost of living, including the possibility of introducing voluntary price caps.Barclay told the BBC that the government was “working constructively” with supermarkets. However, Andrew Opie of the British Retail Consortium, which represents major supermarkets, said the plan “will not make a jot of difference” to high food prices, which are the result of soaring energy, transport and labour costs. Accusing ministers of keeping food inflation high despite falling commodity prices by presiding over a “muddle” of new regulation, he said: “Rather than recreating 1970s-style price controls, the government should focus on cutting red tape.”Ex-Tory leader Sir Iain Duncan Smith said he was “always pretty concerned when we start getting involved in the free markets”, and former frontbencher Sir John Redwood warned that any state intervention on price setting raised “competition law hazards”. Earlier this month Mark Spencer, minister for food, farming and fisheries, explicitly ruled out asking retailers and producers to stop raising prices. But in a sign that the Conservative party was split over the idea, Sir John Hayes, chair of the so-called Common Sense Group of MPs, said a price cap was a “really good move”, adding that if a voluntary system did not successfully lower prices, “the government will have to go further”.The proposal was first reported by The Sunday Telegraph newspaper.Opie said that supermarkets ran on slim margins and profits had already fallen in the past year, while many retailers have expanded affordable food ranges and locked prices on essential products.The annual inflation rate for food and non-alcoholic drinks remains stubbornly high, at 19.1 per cent in April. Food has overtaken fuel as the single biggest driver of the inflation.The Resolution Foundation think-tank calculates that annual food bills for the average family will be £1,000 higher than their pre-pandemic level by July, hitting poorer families harder because they spend a higher proportion of their budgets on food.Alarm over the impact on struggling households has prompted ministers to host a flurry of meetings in the past month. Officials described the government proposals for supermarkets to introduce a voluntary price cap on essential items such as bread and milk as being at the “drawing-board stage”.Economists said it would be better to increase welfare benefits for the poorest households and rely on competition to bring down prices.

Julian Jessop, former chief economist at the free market Institute of Economic Affairs, said supermarkets might be willing to regard some basic items as loss leaders, but could cut corners on quality or raise prices on other items to compensate. They could also treat the cap as a floor once falling costs allowed, rather than cutting prices.Labour described the proposals as “extraordinary”. Jonathan Ashworth, Labour’s shadow work and pensions secretary, told the BBC: “Rishi Sunak is now like a sort of latter-day Edward Heath with price controls.” In the 1970s Heath, then prime minister, introduced price controls in a bid to curb inflation.A government official said: “We recognise retailers operate on low margins. But we are acutely aware of the cost of living squeeze people feel. So we are talking to retailers about what can be done to keep prices as low as possible.”Earlier this year the French government agreed a deal with major supermarkets under which retailers were asked to make their own choice about which food items to earmark for price freezes and reductions. More

Hello and welcome to the working week.May is nearing its end and two stories that we have spent much of the month circling around are now moving towards resolution: the make-or-break presidential election for Turkey’s Recep Tayyip Erdoğan and the US debt ceiling negotiations.Turkish voters headed to the polls for the second time in a fortnight on Sunday with Erdoğan on course to extend his rule into a third decade, and we can expect plenty of analysis on where Turkey is headed over the next few days. Turkey’s first-quarter gross domestic product figures are out on Wednesday, giving some sense of the scale of the economic challenge the winner will face.In the US, President Joe Biden has struck a deal with Kevin McCarthy, the Republican House of Representatives Speaker, that would avert a debt default looming in early June and bring relief to the global economy and financial markets over the weekend, but there are still some potentially hair-raising votes in the week ahead.The deal is likely to face resistance from some lawmakers in both the Republican and the Democratic parties, a situation that could further extend the uncertainty over the US’s fiscal future over the coming days.If Biden can get the deal through Congress, that leaves financial markets to soak up a flood of US debt issuance in the coming weeks, according to the FT’s Kate Duguid. Across the Atlantic, Nato foreign ministers will meet in Oslo on Thursday to discuss the Ukraine war as evidence mounts that Kyiv’s long-awaited counter-offensive is about to get under way. Another key geopolitical moment will come at the Shangri-La security forum in Singapore, which begins on Friday. US defence secretary Lloyd Austin had been hoping to meet Li Shangfu, China’s new defence minister, at the event but Beijing has rebuffed his overtures as relations are fraught — Washington hit Li with sanctions in 2018.Have a good week and email me with any comments at [email protected] dataThe Whitsun/Spring/Memorial day public holidays on Monday reduce the run of economic and corporate news this week.US employment numbers on Friday will be closely watched. Despite the best efforts of the Federal Reserve in raising the headline interest rates, the US jobs market is running hot.There is also another chance for some international economic comparisons with purchasing managers’ index reports on manufacturing across the G7 nations.European Central Bank president Christine Lagarde is among a clutch of central bankers speaking at events this week. More details below.CompaniesIt’s a quiet week for results with a mixed bag of companies reporting, but I’m going to concentrate on UK retailers. The revival of air passenger numbers should be good news for British books, magazines and sweets chain WHSmith after its transformation from a slightly tired-looking outlet on provincial high streets into an international business focused on airport departure lounges. The company has plans to open more than 120 stores, about half of which will be in North America. Investors will find out more with a trading update on Wednesday.Britons love a bargain, especially amid the cost of living crisis. So B&M, which also reports on Wednesday, should be lifted by shoppers trading down. Its share price is up about 9 per cent year on year, buoyed by hopes for an imminent peak in interest rates, lower oil prices, caps on fuel bills and improved consumer confidence.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayBelgium, France, Germany, the Netherlands, Norway, Switzerland and several other countries: Whit Sunday public holiday. Financial markets closedNvidia’s founder and chief executive Jensen Huang and Arm’s chief executive Rene Haas will deliver keynote speeches at the start of the Computex technology conference in TaipeiUK, Spring bank holiday. Financial markets closedUS, Memorial Day federal holiday. Financial markets closedTuesdayJapan, April labour force surveyUS, CB May Consumer Confidence indexResults: Greencore H1, Hollywood Bowl H1, HP Q2, U-Haul Holding Q4WednesdayBank of England Monetary Policy Committee member Catherine Mann takes part in a panel discussion on central banks, inflation and monetary policy, hosted by Swiss bank Pictet in ZurichCanada, India, Italy, Turkey: Q1 GDP figuresChina, NBS manufacturing purchasing managers’ index (PMI) dataFrance, Germany: May harmonised index of consumer prices (HICP) and consumer price index (CPI) inflation rate dataGermany, May unemployment rate figuresJapan, monthly industrial production figuresUK, FTSE index quarterly review, deciding which companies have been promoted into and relegated from FTSE indices by market capitalisationUS, Federal Reserve Beige BookResults: Bodycote AGM and trading statement, Bloomsbury Publishing FY, B&M European Value Retail FY, Nordstrom Q1, Salesforce Q1, WHSmith Q3 trading statementThursdayBrazil, Q1 GDP figuresEU, European Central Bank publishes accounts of May policy meeting. Also, the 25th anniversary of the ECB replacing the European Monetary InstituteECB president Christine Lagarde speaks at the 27th German Savings Banks Conference 2023 ‘Because it’s about more than money’ in HanoverChina, EU, Japan, UK, US: S&P Global/Cips/HCOB/Caixin/Jibun Bank manufacturing PMI dataUK, Nationwide house price surveyUS, Goldman Sachs president John Waldron speaks at the Bernstein 39th annual strategic decisions conference in New YorkResults: Auto Trader FY, Broadcom Q2, Dell Technologies Q1, Dollar General Q1, Dr Martens FY, Macy’s Q1, Pennon FY, Rémy Cointreau FYFridayFrance, monthly industrial production figuresKorea, flash Q1 GDP figuresUK, Purplebricks shareholders vote on the proposed sale of its trading business and assets to Strike for £1US, May employment reportWorld eventsFinally, here is a rundown of other events and milestones this week. MondayNigeria, former governor of Lagos state Bola Tinubu to be inaugurated as Nigeria’s president after winning the country’s disputed presidential election in February with 36.6 per cent of the voteTuesdayUS, Theranos founder Elizabeth Holmes begins her prison sentence for one count of conspiracy and three counts of wire fraudWednesdayLatvia, parliamentarians elect the country’s next presidentNorway, an informal two-day meeting of Nato foreign ministers begins in Oslo. Nato secretary-general Jens Stoltenberg is due to speak ahead of the gatheringUK, a one-day strike by Aslef union members across 16 train operating companies in their ongoing dispute over driver pay. A further walkout is scheduled for Saturday, creating major disruption for Manchester City and Manchester United fans trying to reach London to watch the FA Cup final at Wembley StadiumUS, Abu Agila Mohammad Mas’ud Kheir Al-Marimi is due to appear in a Washington court charged with destruction of Pan Am flight 103 in 1988. An explosion in the aircraft that was flying over the Scottish town of Lockerbie resulted in the deaths of 270 people — including 190 Americans and 43 UK citizens — 11 of whom were on the groundThursdayFirst day of the meteorological summerUS, President Joe Biden to deliver the commencement address at the Air Force Academy in Colorado for the class of 2023FridayAustria, European Space Agency Ready for the Moon conference begins in Vienna, debating the issue of space exploration for EuropeansFormer Mastercard chief executive Ajay Banga becomes World Bank presidentSingapore, Australian prime minister Anthony Albanese will deliver the keynote address at the opening of the Shangri-La Dialogue Asia security summitUK, rail workers in the RMT union begin a 24-hour strike in their ongoing dispute with the train operating companies over paySaturdayUK, the Cazoo Derby, one of the horseracing Classics billed as ‘the greatest flat race in the world’ takes place at Epsom Downs RacecourseUS, global airlines industry body Iata begins its annual general meetingUS, the SpaceX CRS-28 flight to the International Space Station launches from Florida’s Kennedy Space Center with a Falcon 9 rocket, delivering supplies, equipment and science investigations to the orbiting stationSundayAustria, Opec ministers meeting in Vienna More

(Reuters) -Chicago Federal Reserve Bank President Austan Goolsbee on Sunday welcomed news of a deal to suspend the U.S. debt ceiling, saying failure to forge an agreement would be “extremely negative” for the financial system and broader economy.Interviewed on CBS’s “Face the Nation,” he declined to say whether he would support an interest-rate hike at the Fed meeting on June 13-14. He said the full impact of central bank rate increases to date had yet to be felt.“I try … to make it a point not to prejudge and make decisions when you are still weeks out from the meeting,” Goolsbee said. “We are going to get a lot of important data between now and then.”He said he was heartened by indications U.S. lawmakers will ratify the debt ceiling deal embraced by Republican congressional leader Kevin McCarthy and Democratic President Joe Biden.”If you did not do that, the consequences for the financial system and for the broader economy would be extremely negative,” Goolsbee said. “Even the anticipation of these problems does have consequences on the economy, it does have consequences on financial markets.”There is already “fear and uncertainty” just around interest rates, which the Fed has raised by a full five percentage points since March 2022, Goolsbee said. Calling into question the value of U.S. debt – among the world’s safest and most widely held assets – “is not good for lending, is not good for the real economy… let’s just avoid it: let’s raise the debt ceiling and get onto the next thing.” Goolsbee said he believed the Fed could avoid recession.”The actions that the Fed takes take months or even years to work their way through the system … there’s no doubt inflation is too high, still – it has come down – and we are just trying to manage. Can we get inflation down without starting a recession?” Goolsbee is seen as being among the Fed’s more dovish policymakers, more sensitive to threats to the Fed’s mandate to keep Americans fully employed than to the dangers of high inflation, though he has joined his colleagues in raising rates so far this year. After 10 straight interest-rate hikes that have by early this month brought the policy rate to a 5.00%-5.25% range, Fed policymakers have signaled they may skip raising rates in June to assess the impact of their policy tightening so far. The latest data showing inflation is still running at more than double the Fed’s 2% target, and making slower progress than policymakers had hoped, has traders betting the Fed is not done raising rates yet. Still to come before the Fed’s June rate decision is another monthly read on the U.S. unemployment rate, now at a decades-low of 3.4%, and on consumer price inflation. More