White House and Republicans seal a tentative deal to raise the debt ceiling

US equities ended last week broadly higher, thanks to growing optimism about a debt-ceiling deal and a string of strong earnings reports from microchip makers that delivered a fifth straight weekly gain for the Nasdaq Composite, leaving it at a nine-month high.  The positive mood persisted despite hotter-than-expected PCE inflation data, reinforcing bets the Federal Reserve will maintain its hawkish stance and keep interest rates elevated for an extended period.  For the week, the Dow lost 1% while the S&P went up by 0.3%.  Meantime, European shares staged a recovery at the end of a volatile week, bouncing back from multi-week lows on Friday.  The Euro Stoxx 50 index surged by 1.6% on the day but was still down 1.1% for the whole week. 

Summary for 29.05.2023 

• Most Asian equities rose on Monday as markets cheered a tentative deal between US lawmakers to hike the debt ceiling and avert a default, with Japan’s Nikkei racing back to near 33-year highs on improved risk appetite.  Gains were driven largely by heavyweight chipmaking and financial equities, as technology shares continued to benefit from expectations that interest in artificial intelligence will drive demand this year. 
• European markets and poised to open higher today cheered by news of a US deal on raising the debt ceiling.  Meantime, the UK and US markets will be closed today with the latter celebrating Memorial Day. 
• Oil prices rose in Asian trade this morning as US lawmakers said they had reached a provisional agreement to raise the debt ceiling, with the focus now turning to key Chinese data this week for cues on the world’s largest oil importer.  Oil was also supported by the prospect of increased US fuel demand thanks to the memorial day weekend, which usually heralds the beginning of the travel-heavy summer season. 

• With days to spare before a potential first-ever government default, President Joe Biden and House Speaker Kevin McCarthy reached a final agreement Sunday on a deal to raise the nation’s debt ceiling and worked to ensure enough Republican and Democratic votes to pass the measure in the coming week. 
• Profits earned by China’s industrial firms dropped by 20.6% from a year earlier in the first four months of 2023, amid a weakening economic recovery, feeble demand, and margin pressures.  The decline followed a 21.4%; lunge in the prior period and a 4% fall in 2022, with profits shrinking in both state-owned firms and the private sector. 
• Outgoing Turkish president Recep Tayyip Erdogan won the presidency in a runoff election held yesterday, extending his rule for a third decade.  Erdogan secured 52.14% of the votes, dashing hopes for the opposition led by Kemal Kilicdaroglu which had pledged change, economic improvement and a more democratic government.  
• Data released on Friday showed that PCE prices in the US, the Federal Reserve’s preferred inflation gauge, rose more than expected in April.  US consumer spending and durable goods orders also exceeded forecasts in April, indicating that the US economy remains resilient in the face of higher interest rates.  Markets are now pricing in a higher chance that the Fed will deliver another 25 basis point rate hike in June, a shift from previous expectations for a pause in the tightening cycle. 
• This week on the data front, investors are expected to closely follow the US labour report, JOLTS job openings, ISM Manufacturing PMI, and CB consumer confidence.  Additionally, inflation rates are anticipated for the Euro Area, Germany, France, Italy, and Spain.  Q2 GDP growth rates will be released for Canada, India, Brazil, and Turkey, along with manufacturing PMIs for China, Italy, Spain, Canada, Russia, India, and South Korea.