US stocks write off losses on signs of debt ceiling compromise

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Stocks on Wall Street rebounded after a sell off Wednesday morning as Republicans appeared to offer a route, albeit a temporary one, to end the deadlock over the US debt ceiling in Congress.

Mitch McConnell, Senate Minority Leader, said in a statement Wednesday that his Republican Party would support an emergency extension of the federal government’s debt ceiling until December, which would rule out the immediate threat of a debt default. United States.

The benchmark S&P 500 reversed its initial losses of up to 1.3%, closing 0.4% higher following the comments. The tech-rich Nasdaq Composite climbed 0.5%.

Randy Frederick, Managing Director of Trading and Derivatives at Charles Schwab, said, “I think very few people expected the US to default, just the perspective and the discussion about it. . . scares people a little.

Frederick said further increases would depend on whether Democrats and Republicans succeed in a deal, but he said that “if these things follow, I think the market has the potential for a pretty good rally of relief.”

Government bond prices also strengthened following the announcement of the debt ceiling. The yield on the benchmark 10-year Treasury bill, which rises when prices fall, hit a three-month high of 1.57% earlier today. But the yield fell back to 1.52 percent after McConnell’s statement, down 0.01 percentage point for the day.

The potential end of the debt ceiling standoff overcame early trading day concerns that had weighed on equities, including the threat of an interest rate hike.

The fall in commodity prices, which have been steadily increasing in recent weeks, has nevertheless increased the pressure on energy stocks in the United States. President Vladimir Putin said on Wednesday that Russia was ready to supply more natural gas to Europe, which led to a sharp drop in prices.

UK gas contracts for November delivery jumped almost 40% to over £ 4 a therm earlier Wednesday, before falling back to £ 2.71 after Putin’s comments.

Brent crude, the international benchmark for oil which hit $ 83.47 a barrel on Wednesday, fell 1.8 percent to $ 81.08.

The decline hit stocks across Europe, with the region-wide Stoxx 600 falling 1% due to a 2% drop in its energy sub-sector. London’s FTSE 100 index fell 1.1% as the stock prices of major constituents BP and Royal Dutch Shell, oil producers, fell around 2.5% each.

Toby Clothier, head of the global thematic and strategic team at Mirabaud Securities, said markets were suffering under the weight of a “toxic combination” of “runaway inflation of all kinds, with the Fed realizing it was time to stop buying bonds and China slows down “.

Headline inflation in the United States has exceeded 5% for three consecutive months, with price pressures in August widening from those caused by supply chain bottlenecks linked to the pandemic in the United States. housing sector.

“Market sentiment is just terrible right now,” said Patrick Spencer, vice president of equities at RW Baird. “It’s a wall of worry, driven by inflation.”

Employment data due Friday is expected to show U.S. employers hired nearly half a million workers in September, bringing the Federal Reserve closer to its maximum employment target which analysts say will set the stage for the central bank in November to announce the reduction of its Bond Purchase Program by $ 120 billion per month.

The US private sector payroll increased by 568,000 last month, according to a report by payroll processor ADP released Wednesday. It was the biggest increase since June and exceeded economists’ expectations for an increase of 428,000.

The dollar index, which measures the greenback against six other currencies, rose 0.3%, trading near its highest levels in a year.

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Robert Armstrong dissects the most important market trends and explains how the best minds on Wall Street are reacting to them. Sign up here to receive the newsletter directly to your inbox every day of the week


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