A look at the day ahead in U.S. and global markets from Mike Dolan.
Well-choreographed brinkmanship over the debt ceiling standoff looks set to go down to the wire, while technology firms have once again become a battleground in tense geopolitics.
Despite growing optimism last week about some bipartisan deal on lifting the U.S. debt cap - preventing the government running out of cash early next month and forcing a technical default on short-term debts - negotiations huffed and puffed late on Friday and over the weekend.
But another top-level meeting on Monday keeps the show on the road. President Joe Biden and House Republican Speaker Kevin McCarthy meet again on the issue later on Monday after a "productive" phone call as the president headed back to Washington from the G7 summit in Japan.
With only nine days left to hammer out a deal before a cash crunch starts to force government shutdowns, Treasury Secretary Janet Yellen insisted June 1 remains a "hard deadline" for raising the federal debt limit and said the odds are quite low that government will collect enough revenue to bridge to June 15.
Biden told reporters in Japan he believed he could invoke the 14th Amendment to the U.S. Constitution to raise the debt ceiling without Congress but doubted there was enough time remaining to use that untested legal theory to avoid default.
If Treasury bill yields and the dollar reflect the most immediate concerns about the row, anxiety ticked up a bit on Monday despite more relaxed global stock markets. One-month bill yields that now cover that early June period were 5.66% early on Monday - up more than 10 basis points from Friday's close and still almost 60bps above "risk free" swaps for the same period.
But the dollar was marginally firmer.
The weekend G7 summit threw up several conflicting angles on Western relations with China.
Chinese state media bristled at a joint G7 communique that singled out China on issues from Taiwan and nuclear arms to economic coercion and human rights abuses and which urged a reduction of supply-chain dependence on the country.
Alongside the angry rhetoric, there was more direct impact in a move by Beijing to bar U.S. firm Micron Technology (NASDAQ:MU) from selling memory chips to key domestic industries - a decision that lifted shares of domestic firms that could benefit from the move.
And yet there were also more positive soundings from the U.S. side. Biden said on Sunday the G7 did not want to "decouple" from China, rather "de-risk and diversify". And he added he expected a thaw in frosty relations with China "shortly".
That sliver of optimism alongside the Micron move saw Hong Kong stocks outperform in a generally buoyant start to the week for Asia's bourses.
European stocks and Wall St futures were flat.
As AI-fueled U.S. technology stocks have led the way this year, the S&P has gained almost 10% this year and hit its highest level in nine months on Friday. Bank of America (NYSE:BAC) on Monday lifted its yearend forecast for the index by some 300 points to 4,300 - another 3% higher from here.
With macro markets awaiting early May business sentiment readings this week as well as U.S. and UK inflation reports, optimism was high that the Fed would refrain from hiking rates again in June even if it continued to push back against market pricing for rate cuts later in the year.
Fed Chair Jerome Powell said on Friday that "the risks of doing too much or doing too little are becoming more balanced". Minneapolis Fed chief Neel Kashkari said on Sunday he could support holding rates steady at the next meeting.
Futures markets see more than an 80% chance of a June pause and still price almost 50bp of cuts by yearend.
Elsewhere, Greek markets surged as Prime Minister Kyriakos Mitsotakis claimed victory in a parliamentary election on Sunday.
In deals, London-based law firm Allen & Overy and New York's Shearman & Sterling plan to merge in an agreement that would create one of the world's largest legal practices with combined global revenue of approximately $3.4 billion.
Events to watch for later on Monday:
* Euro zone May consumer confidence
* U.S. President Joe Biden and House Republican Speaker Kevin McCarthy discuss debt ceiling
* U.S. Treasury auctions 3-, 6-month Treasury bills
* San Francisco Federal Reserve President Mary Daly, Richmond Fed President Thomas Barkin, Atlanta Fed chief Raphael Bostic and St. Louis Fed chief James Bullard all speak
* U.S. corporate earnings: Zoom, Nordson (NASDAQ:NDSN)
(By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)