World shares are climbing on hopes of a successful outcome of the debt ceiling

SYDNEY, May 15 (Reuters) – World shares rose on Monday on cautious optimism ahead of this week’s deliberations on the $31.4 trillion debt ceiling, a slew of economic data due and a number of central bankers lining up to hint at further interest rate hikes on hold .

European markets opened higher, with the pan-regional Stoxx (.STOXX) up 0.2% as of 0854 GMT. Both S&P 500 futures and Nasdaq futures rose 0.4% and 0.3% respectively.

In emerging markets, the Turkish lira hit a two-month low after weekend elections appeared headed for a toss, while the Thai baht rose nearly 1% after Thailand’s opposition routed military-allied parties in weekend polls as well.

The lira was at 19.65 against the dollar by 0851 GMT, having hit 19.70 in earlier trade, the weakest since a record low of 19.80 in March this year after earthquakes killed at least 56,000.

It was on track for its worst trading session since early November. On the Istanbul Stock Exchange, a 6.38% drop triggered a circuit breaker for the entire market.

On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) reversed earlier losses to rise 0.7%, driven by a late rally in Chinese and Hong Kong stocks.

China’s central bank kept interest rates on medium-term policy loans steady on Monday, although expectations are building that monetary policy easing may be inevitable in the coming months to support an economic recovery.

US President Joe Biden expects to meet with congressional leaders on Tuesday for talks to raise the nation’s debt limit and avoid a catastrophic default, and said Saturday that talks are moving forward.

“The debt ceiling is the elephant in the room, but traders are hoping that common sense will win the day,” said James Rossiter, head of global macro strategy at TD Securities in London.

Neither side wants a default, said Rossiter, who believed an agreement would be found but said anything was possible.

Concerns that the US Congress will not raise the debt ceiling in time have created major distortions at the short end of the yield curve, as investors shun bills due when the Treasury risks running out of funds and pour into alternative issues.

The yield on the benchmark 10-year note was little changed at 3.4756%, after rising 6 basis points on Friday, and two-year yields were steady at 3.9936%, having also jumped 10 basis points in the previous session.

Also this week, a number of Federal Reserve officials are speaking, with Chairman Jerome Powell set for Friday, and could generate plenty of headlines to move the dial further.

Traders currently put the odds on the Fed holding interest rates steady at 17.7%, up from 8.5% a week ago, after a report on Friday showed US long-term inflation expectations jumped to the highest since 2011, increasing the dollar and government interest rates.

However, bets remain on as many as three quarter-point cuts by the end of the year, after CPI and PPI data supported the case for the Fed to pause given slowing inflation.

Fed Governor Michelle Bowman said on Friday that the US central bank will likely have to raise interest rates further if inflation remains high.

“While we believe the directional bias is correct, i.e. a cut is the next move rather than an increase, it may now take a softening in global growth or sharply weaker growth to even meet current market prices, or lead to further repricing.” said John Briggs, global chief financial officer at NatWest Markets.

Oil prices fell for the fourth session in a row. U.S. crude futures fell 0.2% to $70.20 a barrel, while Brent futures fell 0.2% to $74.29 a barrel.

Gold prices were 0.3% higher at $2,017.42 an ounce.

Reporting by Stella Qiu; Editing by Sonali Paul

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