Marketmind: Counting down the $70 billion to a debt deal

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U.S. President Joe Biden holds debt limit talks with Congressional leaders at the White House in Washington

A look at the day ahead in European and global markets from Vidya Ranganathan

The week draws to a close with pretty much the same buzz around artificial intelligence and U.S. debt diplomacy that it kicked off with.

Stock markets were getting a breather after the excitement over the blowout forecast from chipmaker Nvidia Corp and the follow-through rally in AI-related companies, which powered the Nasdaq’s best day in three weeks.

Japan’s Nikkei maintained its momentum, however, after data showed inflation again well above policy targets and as foreign money poured into the market.

But all eyes are on the U.S. debt ceiling debate, where it looks like President Joe Biden and top Republican lawmaker Kevin McCarthy are just $70 billion apart on discretionary spending, according to a person familiar with the talks.

The deal’s going down to the wire, which itself is a moving target. Treasury’s announcement of a slate of bill auctions for early next week had some market participants suggesting the debt ceiling’s so-called “X-date”, when the government runs out of cash, may not in fact be June 1. Figures on Thursday showed that Treasury’s cash balance is down to just $49.47 billion.

The deal is not final, and work requirements for anti-poverty programs are a sticking point as is funding for the Internal Revenue Service to hire more auditors and target wealthy Americans. But funding for discretionary spending on military and veterans is on, as per sources.

Meanwhile, markets are growing less confident that the Federal Reserve will keep rates on hold in June. The CME FedWatch Tool now puts the chances of a quarter-point rate rise to 5.25-5.50% on June 14 at more than 50%.

Main economic indicators on Friday include the U.S. Commerce Department’s personal consumption expenditures (PCE) price index figures for April, which could show a small rise similar to March.

Key developments that could influence markets on Friday:

U.S. PCE price index

ECB’s Philip Lane and Croatian central bank Governor Boris Vujcic speak at events

(Reporting by Vidya Ranganathan; Editing by Edmund Klamann)

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