Stock index futures pointed to gains of more than 1 percent at the open on Monday on relief over a last-ditch deal in Washington to raise the U.S. borrowing limit and avert an unprecedented default.
Lawmakers were expected to vote on Monday on the White House-backed agreement, which includes spending cuts of $2.4 trillion over 10 years. The deal was seen passing the Democratic-led Senate, but faced tougher opposition in the U.S. House of Representatives, where both conservative Tea Party supporters and liberal lawmakers have criticized it.
Even though a default was considered unlikely by many investors, equities grew increasingly volatile as Washington was stalemated. Wall Street ended its worst week in a year last week.
“This deal will obviously help, relative to the immediate problem of whether the government will be able to pay its bills, and that’s leading to a definite relief rally here,” said Wayne Kaufman, chief market analyst at John Thomas Financial in New York, who added that the market was oversold following last week’s losses.
S&P 500 futures rose 16 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures soared 161 points, and Nasdaq 100 futures jumped 27.5 points.
Gold, seen as a safe haven in times of economic uncertainty, fell 0.7 percent following the deal, while September crude futures climbed 1.8 percent. The Select Sector Energy SPDR Fund rose 1.6 percent in light trading.
Even with an agreement, many investors were concerned about a possible downgrade of the United States’ AAA sovereign debt rating, as well as European sovereign debt problems. Some analysts said Monday’s rally in futures could be short-lived. The FTSEurofirst 300 index of top European shares was up 0.5 percent.
“The deal lowers the odds of a downgrade, but it doesn’t make it go away,” Kaufman said. “People still have question marks in their minds about what comes next.”
In earnings news, Allstate Corp recorded a second-quarter loss as its catastrophe losses soared 268 percent, while Loews Corp posted quarterly profits below estimates it was hit by higher catastrophe losses and lower income from its biggest holding, CNA Financial Corp.
Allstate rose 2.8 percent to $28.50 in light premarket trading, Renters reports.
Separately, insurer Humana Inc raised its full-year profit view, sending the stock up 5.6 percent to $78.78 before the bell.
Economic indicators on tap include June construction spending, which is seen as unchanged, and July ISM manufacturing data. ISM is seen coming in at 54.9, down from a read of 55.3 in June. July’s non-farm payroll number, due Friday, will also be a focus for investors.
HSBC Holding Plc reported a surprise first-half profit and said it would cut 30,000 jobs as it retreats from countries where it is struggling to compete. U.S.-listed shares of the bank rose 3.8 percent to $50.73 in premarket trading.
Stocks fell for five straight days last week, with the S&P down 3.9 percent over the period on the political logjam in Washington over the debt ceiling.