Stocks Rebound on Possible Debt Limit Extension: Markets Wrap

(Bloomberg) -- Stocks whipsawed in heavy trading as Republicans were poised to offer Democrats a way to end the debt limit impasse.

The S&P 500 and Nasdaq 100 both gained, erasing earlier losses of more than 1%, after Senate Minority Leader Mitch McConnell said he planned to offer a short-term debt ceiling increase that would last into December.

The turbulence came as the benchmark S&P 500 has logged four straight days of 1% moves amid a growing list of concerns including the debt ceiling, inflation and surging energy prices. European equities also halved losses as natural gas prices -- up as much as 40% at one point -- turned lower after Russia’s President Vladimir Putin said the country is ready to help.

“With the latest news that Republicans are willing to come to the table and negotiate an extension, equities (and yields) have rallied back,” Anna Han, a Wells Fargo Securities strategist, said in an email. “It’s certainly not all peachy, but it does bring short-term relief to one of the various macro risks we have been watching.”

The yield on the U.S. 10-year Treasury note was little changed as investors considered the U.S. economic outlook. ADP employment data beat analyst expectations ahead of Friday’s U.S. nonfarm payrolls, cementing predictions the Federal Reserve will taper stimulus next month. A strong U.S. jobs report could assuage worries about ongoing hiring challenges. However, the market remains volatile on concerns elevated inflation may persist longer than the central bank expects, especially in the face of an energy crunch this winter.

“To be sure, the beat on private payroll numbers is a positive but there’s no shortage of catalysts out there that could move the market,” said Mike Loewengart, managing director of investment strategy at E*Trade Financial, adding that positive labor data could prompt the Fed to tighten policy at a quicker pace. “But the fact that hiring is up, shouldn’t be discounted. It’s definitely a good thing in terms of recovery.”

If job gains in the ADP data does translate to Friday’s report, analysts expect the Fed to announce taper plans for asset purchases in early November. Fed chair Jerome Powell said he was looking for “decent” job growth.

“We’re in quite a different labor market in that for many sectors there is a shortage of workers,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Hopefully we’re in the midst of seeing more labor supply with kids back in school, Covid under control and the end of the extra unemployment benefits.”

Crude oil in New York fell, the dollar was stronger against major peers, and Bitcoin jumped above $54,000.

For more market analysis, read our MLIV blog.

Here are some events to watch this week:

• Reserve Bank of India monetary policy decision on Friday
• The U.S. Labor Department releases unemployment and job creation data Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.6%
• The Dow Jones Industrial Average rose 0.3%
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.3% to $1.1558
• The British pound fell 0.3% to $1.3588
• The Japanese yen was little changed at 111.39 per dollar

Bonds

• The yield on 10-year Treasuries was little changed at 1.52%
• Germany’s 10-year yield was little changed at -0.18%
• Britain’s 10-year yield declined one basis point to 1.07%

Commodities

• West Texas Intermediate crude fell 2.4% to $77.06 a barrel
• Gold futures rose 0.3% to $1,765.50 an ounce

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