A stocks rally on optimism over talks to avert a catastrophic US debt default ran out of steam on Thursday.
Wall Street stocks jumped on Wednesday as investors were reassured that a deal would be done to avoid the US government defaulting on its massive debt that would likely trigger a cataclysm on markets. That sent Asian markets higher as trading got under way on Thursday, with European stocks following.
But Wall Street opened mixed on Thursday despite Walmart posting better-than-expected first quarter results and raising its annual profit forecast, with the Dow shedding 0.2 per cent. The S&P 500 dipped while the tech-heavy Nasdaq Composite edged higher.
Walmart shares jumped 2.1 per cent as trading got under way.
"Market participants continue to contend with a lot of mixed signals that make it difficult to have a lot of conviction on both the buy side and the sell side," said market analyst Patrick O'Hare at Briefing.com.
While Walmart's results were mostly reassuring following a dismal release by Home Depot earlier this week, another US regional economic survey pointed to contraction while first-time unemployment claims fell last week to 242,000.
'Keep the market guessing'
The strong labour market has been one reason the US Federal Reserve has plowed on with its interest rate hikes, with worries it may tighten monetary policy too much and push the economy into recession.
The unemployment figures "will keep the market guessing about the Fed's monetary policy stance and the specter of the Fed overtightening", said O'Hare.
Market participants continue to contend with a lot of mixed signals that make it difficult to have a lot of conviction on both the buy side and the sell side- Market analyst Patrick O'Hare at Briefing.com
The dollar rose further on Thursday, having already made solid gains the previous day as investors sought shelter in the haven unit.
G7 leaders arrived in Hiroshima, Japan, for a key summit – but the debt drama has already forced US President Joe Biden to cancel planned stops in Papua New Guinea and Australia, sparking hopes of a breakthrough.
Markets have been skittish in recent sessions with Republicans and Democrats unable to find common ground as the deadline for a deal to raise the country's borrowing limit approaches.
"The Washington mood-music and President Biden's decision to cut short his trip to the G7 meeting have given markets hope that a debt limit solution will be forthcoming, improving the market mood, with equities higher and bond volatility fading away," noted Societe Generale analyst Kit Juckes.
Talks this week between Biden, House Speaker Kevin McCarthy and congressional leaders appear to have been fruitful. "I'm confident that we'll get the agreement that we need on the budget and that America will not default," Biden said at the White House just before he set off for the G7.
McCarthy added that Biden and Democratic Senate Majority Leader Chuck Schumer had "finally backed off the insane, irrational, unsensible idea that you just raise the debt ceiling." "I'm optimistic about our ability to work together," he said. "The only question of whether we have a Biden default is the president himself."
Treasury Secretary Janet Yellen has warned that the US government would likely run out of cash by June 1 while the non-partisan Congressional Budget Office has forecast June 15.