Markets Overview

  • ASX SPI 200 futures up 0.6% to 7,260.00
  • Dow Average up 1.2% to 33,420.77
  • Aussie little changed at 0.6659 per US$
  • U.S. 10-year yield rose 3.2bps to 3.5679%
  • Australia 3-year bond yield rose 3 bps to 3.14%
  • Australia 10-year bond yield rose 2 bps to 3.43%
  • Gold spot down 0.4% to $1,982.06
  • Brent futures up 2.5% to $76.76/bbl

Economic Events

  • 10:30: (AU) Australia to Sell A$1 Billion 126-Day Bills
  • 11:00: (AU) May Consumer Inflation Expectation, prior 4.6%
  • 11:30: (AU) April Part Time Employment Change, prior -19,200
  • 11:30: (AU) April Full Time Employment Change, prior 72,200
  • 11:30: (AU) April Employment Change, est. 25,000, prior 53,000
  • 11:30: (AU) April Participation Rate, est. 66.7%, prior 66.7%
  • 11:30: (AU) April Unemployment Rate, est. 3.5%, prior 3.5%

The stock market climbed on speculation that a narrower group of Washington negotiators will break a deadlock on raising the US debt ceiling and avoid an unprecedented default.

Equities halted the recent trading lull, with gains in the S&P 500 topping 1% and the Nasdaq 100 hitting the highest since August. Treasuries dropped, with yields on 10-year notes approaching 3.6%. President Joe Biden expressed confidence there will be no default, and House Speaker Kevin McCarthy said reaching an agreement this week is “doable.”

“We don’t want to get too excited as the two sides reportedly remain far apart,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. “However, we get the sense that there is a real effort to avert a debt ceiling catastrophe as the X-date of June 1 is fast approaching. Stay tuned.”

JPMorgan Chase & Co.’s chief Jamie Dimon said the US government “probably” will not default on its debts. He joined other top executives of major banks in a meeting with Senate Majority Leader Chuck Schumer to discuss the debt limit.

The Treasury’s cash balance rose to $94.6 billion as of May 16, according to data published Wednesday. That’s up from from $87 billion a day earlier and compares with $140 billion at the end of last week. The Treasury’s bank account has been under downward pressure recently because of measures being taken to avoid breaching the $31.4 trillion debt cap.

“We all know the US Treasury is about to run out of ways to pay its bills, but we have seen this movie too many times before,” said Chun Wang at Leuthold Group. “While, theoretically, there is a threat of default, we certainly don’t recommend planning our lives around it. The script is very predictable: political posturing and grandstanding will go on until the 11th hour, and then a deal will be hastily put together to avoid a default.”

If history is any guide, the debt-ceiling turmoil tends to be short-lived, without much impact on stocks before or after a resolution, Wang added. However, the August 2011 instance caught many investors by surprise, with equities slumping for a week or so before stabilizing. Assuming the date of resolution is June 1, the current pattern is “uncomfortably similar to August 2011,” he noted.

To Amy Wu Silverman at RBC Capital Markets, while markets are betting on a rocky end to the debt-ceiling debate, if they are wrong, investors may miss out on the gains.

“The tale of optimism does not exist,” she told Bloomberg Television. “Is there a possibility of a congressional miracle? If it at all comes in a little bit easier than we expect, that right tail is very cheap.”
Also helping sentiment Wednesday was a rally in regional banks after Western Alliance Bancorp reported growth in deposits, easing worries about the health of the industry.

Other News

Air China Ltd. has swamped an Australian flight school with a request for commercial pilots, a sudden demand that points to a looming rebound as the vast Chinese market resumes international travel.

Beijing-based Air China had stopped sending its trainees to the Australian Airline Pilot Academy campus in regional Victoria state after the pandemic halted overseas travel in early 2020. But talks resumed two months ago and the giant state-run carrier, almost out of nowhere, pushed the school to interview more than 100 candidates from China in just four days in April.

“It went from nothing to ‘when can we start?”’ said Chris Hine, executive chairman of the academy. “Logic tells me that we must only be at the start of it. Airlines are still rebuilding.”

The urgency of Air China’s personnel requirements underscores the pace of the post-pandemic passenger rebound — and the sheer number of flight crew needed to sustain it. The world will need more than 600,000 new pilots between 2022 and 2041, and the biggest requirement is in Asia, according to the latest forecast by planemaker Boeing Co.

The biggest potential crew demands for Chinese airlines may be on overseas services. In Northeast Asia, a region dominated by China, international flying is wallowing 42% below pre-Covid levels, according to OAG. The region’s domestic air-travel market is already larger than it was before the pandemic, the data shows.

Air China, which has a fleet of 757 aircraft, didn’t immediately respond to a request for comment.

China’s largest low-cost carrier, Spring Airlines Co., which is adding more than 10 aircraft every year to build on its almost 120-strong Airbus SE fleet, needs many more cadet pilots to keep up with the pace of expansion, according to Vice President Zhang Wu’an. The number of new pilots needed annually will soon exceed the pre-Covid rate of around 200, he said, adding that while pilots train mainly in China, some gain qualifications in the US or Australia.

Recent bumper aircraft orders suggest the shortfall of pilots needed to fly the world’s commercial fleet in coming decades may only become more acute. European low-cost airline Ryanair Holdings Plc this month agreed to buy as many as 300 Boeing 737 Max jets with a list value of $40 billion. Air India Ltd. in February announced a 470-plane order with Airbus SE and Boeing in what stands to be the largest purchase in commercial aviation history.