Wall Street up sharply predicts US debt deal

The New York Stock Exchange ended sharply higher on Friday anticipating a very soon agreement on the debt ceiling in the United States and ignoring for the moment the bad news on the side of inflation.

The Nasdaq, where technology stocks are concentrated, led the rise, gaining 2.19% to 12,975.69 points to reach its highest level of the year. The Dow Jones gained 1.00% to 33,093.34 points and the S&P 500 advanced 1.31% to 4,205.45 points.

As the window of opportunity narrows to avoid an American default, the White House and the Republican opposition continued Friday to build a compromise.

“We are closer (to an agreement) but it’s not done yet,” said a source close to the discussions, skeptical about the possibility of an announcement on Friday.

The agreement would freeze certain expenses, but without affecting the budgets devoted to defense and veterans, notably reported the New York Times or the Washington Post.

“The market has soared on hopes” that Republicans and Democrats “will announce a deal very soon that will help avoid the default,” commented Peter Cardillo of Spartan Capital.

The markets have surfed on this optimism and also continued to be carried by the enthusiasm that the development of artificial intelligence generates for technology stocks and those of semiconductor manufacturers.

However, an inflation indicator in the United States came as a surprise by accelerating more strongly than expected in April. The PCE index, the Fed’s preferred metric for measuring rising prices, rose 4.4% year on year, from 4.2% the previous month.

More worryingly, the underlying index, which excludes the volatile food and energy price sectors, accelerated to 4.7%.

– The pause fades away –

These strong inflation figures considerably dampen the possibility of a lasting pause in interest rate hikes, as the markets had been pricing in, but the indices have barely budged, remaining focused on the prospect of a political agreement on the debt.

Inflation data “was very disappointing,” said Peter Cardillo. “Obviously, the rise in prices remains stubborn and once we have applauded an agreement on raising the debt ceiling, we will have to face these macro-economic data and be interested in what will happen next. the Fed,” the analyst added.

“Today’s inflation figure confuses ideas of a pause in rate hikes,” said Peter Cardillo as the Fed meets on June 13 and 14. “It’s not completely ruled out, but it will be a short break and the Fed will revisit the issue in July,” he said.

To add to the persistence of inflation, the IMF, which slightly raised its growth forecast for the United States on Friday to 1.7% in 2023, also warned that underlying inflation “will remain significantly above the 2% target (of the Fed) in 2023 and 2024”. The institution thus invites to keep interest rates at a high level between 5.25% and 5.5% “until the end of 2024”.

On the stock market, chipmaker Marvell Technology soared 32.42% to $65.51 after positive comments on the buoyant momentum of artificial intelligence. Nvidia, one of the industry leaders in AI processors, gained another 2.54% after gaining more than 24% the day before thanks to ambitious projections for the 2nd quarter.

In a move of sympathy with the semiconductor sector, maker Broadcom climbed 11.52%. A multi-billion dollar contract was announced Wednesday between Apple and Broadcom for the order of components used to capture 5G, the fifth generation of mobile phones. Apple gained 1.41%.

Struggling ready-to-wear brand Gap soared 12.33% to $8.34 after a surprise first-quarter profit at the cost of all-out restructuring.