Soaring energy prices retreated and North American stocks rebounded on Wednesday after the top U.S. Senate Republican backed an extension of the U.S. debt ceiling and Russia calmed volatile natural gas markets in Europe.
The unrelated moves eased growing angst among investors about the possibility of a historic default on U.S. government debt and surging Dutch wholesale gas prices, the European benchmark, that had jumped eightfold this year to record highs.
Rising U.S. and European natural gas prices, along with a surge in crude oil, had fueled a rising inflation outlook that also was stoked by a persistent disruption of supply chains for manufactured goods.
Yields on one-month Treasury bills tumbled after Senate Minority Leader Mitch McConnell said his party would support an extension of the federal debt ceiling into December. Republicans had been expected on Wednesday to block a third attempt by Senate Democrats to raise the $28.4 trillion federal debt ceiling.
“There was a lot of nervousness that time was running out on debt ceiling talks,” said Edward Moya, senior market analyst at OANDA in New York.
But the primary catalyst for the day’s volatile market moves was the Russian decisions on natural gas, Moya said.
“The global energy crisis was becoming a focal point for inflation concerns,” Moya said.
Canada’s main stock index finished flat on Wednesday as energy stocks tracked a retreat in oil prices, with sentiment dented further by worries around higher inflation.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 8.23 points, or 0.04%, at 20,191.66, a day after marking its best daily performance in nearly two weeks.
Leading the declines were the energy group down 2.2%, a day after the sub-sector index touched its highest level in nearly two and a half year.
Oil prices dropped nearly 2% on Wednesday, pulling back from multi-year highs, as an unexpected rise in U.S. crude inventories prompted buyers to take a breather after recent torrid gains.
U.S. crude inventories rose by 2.3 million barrels last week, against expectations for a modest dip of 418,000 barrels, the U.S. Energy Department said. Gasoline inventories also rose, while distillate inventories were down only modestly.
Brent crude hit $83.47 a barrel, its highest since October 2018, but settled at $81.08, down $1.48 a barrel, or 1.8%. U.S. crude climbed to $79.78, highest since November 2014, before retreating to $77.43 for a daily decline of $1.50 or 1.9%.
“We saw some profit taking as oil had run up significantly,” said Gary Cunningham, director at Tradition Energy in Stamford, Conn.
The materials sector, which includes precious and base metals miners and fertilizer companies, erased early losses and gained 0.6% as gold ticked up in tight trading on Wednesday on a retreat in U.S. Treasury yields, although a stronger Y,S, dollar put a lid on gains for the safe-haven metal, with investors awaiting U.S. labor market data due later this week.
Spot gold was up 0.1% at $1,760.78 per ounce, reversing from an earlier session low of $1,744.84. U.S. gold futures settled up 0.1% at $1,761.8..
Wall Street ended higher on Wednesday as investors grew more optimistic that congressional Democrats and Republicans could reach a deal to avert a government debt default.
Top U.S. Senate Republican Mitch McConnell said his party would support an extension of the federal debt ceiling into December. This would head off a historic default that would exact a heavy economic toll.
“McConnell made some dovish comments about temporarily extending the debt ceiling,” said Jay Hatfield, founder and portfolio manager at Infrastructure Capital Advisors. “That’s going to be interpreted in the short-run as positive.”
McConnell’s offer could provide an off-ramp to a months-long standoff between President Joe Biden’s Democrats and McConnell’s Republicans, who had been expected on Wednesday to block a third attempt by Senate Democrats to raise the $28.4 trillion debt ceiling.
Stocks were lower for much of the session after a strong showing of private jobs in September fueled bets the Federal Reserve could start reining in monetary stimulus soon.
Unofficially, the Dow Jones Industrial Average rose 0.3% to end at 34,417.98 points, while the S&P 500 gained 0.41% to 4,363.62.
The Nasdaq Composite climbed 0.47% to 14,501.91.
Mega-cap growth stocks Amazon and Microsoft both rose after the benchmark U.S. 10-year Treasury yield retreated from three-month highs by early afternoon.
The ADP National Employment Report showed private payrolls increased by 568,000 jobs last month. Economists polled by Reuters had forecast a rise of 428,000 jobs.
“Positive labor market data comes with the implication that the Fed can tighten policy at a quicker pace. But the fact that hiring is up shouldn’t be discounted — it’s definitely a good thing in terms of recovery,” said Mike Loewengart, managing director, investment strategy at E*TRADE Financial.
The more comprehensive non-farm payrolls data is due on Friday. It is expected to cement the case for the Fed’s slowing of asset purchases.
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