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Budget deal pushes US stock markets higher

US stock markets climbed higher on Monday, as bipartisan agreement over a US budget deal overpowered weak manufacturing data in the US and China, with European markets closed for the May bank holiday.

The benchmark S&P 500 climbed 0.3 per cent by midday in New York on news of the budget deal, shrugging off an initial tumble when data from the Institute for Supply Management showed America’s factories expanded less than forecast in April.

The ISM index fell from 57.2 in March to 54.8 in April, below consensus expectations of 56.5. Oil prices dropped, with Brent crude down 1.5 per cent at $51.30. On employment, the manufacturing index fell from 58.9 in February to 52 in March, ahead of broader US jobs numbers to be released on Friday.

“Manufacturing executives told the president they would build American, but it doesn’t look like their deeds are matching their words,” said Chris Rupkey, chief financial economist at MUFG.

Nonetheless, Ian Lyngen, a strategist at BMO Capital Markets, noted that the ISM implications were muted: “The manufacturing sector hasn’t been a driver of employment for decades,” he pointed out.

US government bonds initially received some support after the ISM data were released, but the 10-year Treasury yield, which moves inversely to price, was up 3 basis points at 2.3 per cent by midday in New York. Other haven asset also clawed back earlier losses, with gold and the yen both unchanged at $1,267 a troy ounce and Y111.48, respectively.

It was a lighter day for earnings announcements. Cable television subscription service Dish Network Corp rose 0.8 per cent in morning trading in New York, after reporting earnings a share of 76 cents, beating analyst estimates of 67 cents a share. The stock price stabilised after an initial dip, with attention focused on the loss of 143,000 subscribers and declining first-quarter profits.

Investors will be watching for comments from the Federal Reserve’s policy meeting this week, as well as the release of the US Treasury’s quarterly refunding documents outlining planned debt issuance. Another batch of unemployment data are also due to be published on Friday

The bipartisan agreement on the budget settled on a $1.1tn bill that would keep the government open through the end of September, with a vote possible this week. The bill fell short of President Donald Trump’s desires, cutting increases to defence spending and preventing a $1.5bn allocation for border security being spent on the contentious wall on the Mexican border.

Currency movements were fairly muted on Monday, with parts of Asia and most of Europe on holiday. The US dollar index fell 0.1 per cent to 98.972 and the Mexican peso strengthened 0.3 per cent against the dollar to 18.76.

But commodities — and especially crude oil — came under pressure, with West Texas Intermediate, the main US benchmark, and North Sea Brent, the biggest international price reference, both falling another 1.3 per cent by midday on Monday, to $48.7 and $51.4 respectively.

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