Asian Shares Rise on Debt Bill Progress, Fed Pause Hopes

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SINGAPORE, Reuters - Asian stocks surged Friday on optimism that the Federal Reserve will not raise interest rates at its next meeting and the passage of the bill raising the U.S. Debt Ceiling.

Chuck Schumer, Democratic majority leader, said that the U.S. Senate was on track to pass a measure to raise the $31.4 trillion government debt ceiling on Thursday night in Washington. The bill had been passed by the House of Representatives on Wednesday.

Treasury Department warns it won't be able to pay its bills by June 5, if Congress doesn't act.

The broadest MSCI index of Asia-Pacific stocks outside Japan soared by 1.13%. S&P/ASX 200 in Australia rose by 0.57% while Nikkei in Japan was up 0.71%.

China's shares have been hit by concerns over the slow recovery following COVID-19. The Shanghai Composite Index is expected to open 0.2% up while Hong Kong's Hang Seng Index will open 2% up.

Overnight data showed that the number of Americans who filed new unemployment claims increased modestly in the last week, and private employers hired a higher number of workers than anticipated in May. This indicates a continued tightening labour market.

Harry Ottley is an economist with Commonwealth Bank of Australia. He said that signs of a slowing in wage pressure have raised hopes for the Federal Reserve to pause its interest rate increases within two weeks.

According to the CME FedWatch tool, traders have gradually reduced their bets that the Fed will raise interest rates within two weeks. The markets now price in a 20% probability of a 25 basis point hike by the central bank, compared to a 50% chance one week ago.

Ottley, CBA's Ottley, said that investors were encouraged by the news that the U.S. House of Representatives passed a U.S. Debt Ceiling Bill in a vital step to prevent a U.S.Default. The measure now moves to the US Senate.

The Labor Department will release its closely-watched unemployment report for the month of May on Friday. The data will determine whether or not the Fed continues with its aggressive rate increases.

The comments of Fed officials have also given Fed pause hope a boost. Philadelphia Federal Reserve president Patrick Harker said that U.S. central banks should not increase interest rates at their meeting.

Harker stated that it was time to stop the meeting for at least one session and observe how things went.

Overnight, Nasdaq's and S&P 500's closed at their highest level since August 2022. Investors embraced the resilient labor market amid optimism that the Fed could engineer a soft landing.

U.S. Treasury rates also dropped on Thursday. Early in the morning Asian hours, two-year U.S. Treasury rates, which are typically correlated with expectations of interest rates, were up 0.6 basis point at 4.347% after slipping around 5 basis points Thursday.

The yield of the 10-year Treasury note was up by 0.2 basis points at 3.610%. However, the yield of the 30-year Treasury bond fell by 0.6 basis point to 3.829%.

The dollar index, which measures the U.S. dollar against six major counterparts, was flat on the currency market after falling 0.6% overnight. Meanwhile, the euro rose 0.01%, to $1.0762.

The Japanese yen fell 0.11%, to 138.93 dollars, while the Sterling last traded at $1.2527. This is a 0.02% increase on the day.

Brent crude was down 0.03% to $74.26, and U.S. Crude eased 0.01% at $70.09 per barrel.

Spot gold fell 0.1% to $1976.69 per ounce. U.S. Gold Futures dropped 0.05% to an ounce of $1,977.10.