Asian stocks notch two-week peak

Asian stocks have crept to two-week highs in cautious trade, helped by hints of progress toward avoiding a US default and by resilience in Japan’s economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan touched its highest level since May 9, and was up about 0.3 per cent by mid-morning on Tuesday. Japan’s Nikkei extended its winning streak into a ninth session and rose 0.6 per cent.

S&P 500 futures advanced 0.2 per cent and European futures rose 0.16 per cent.

US President Joe Biden and House Speaker Kevin McCarthy could not reach an agreement on Monday on how to raise the US government’s $US31.4 trillion ($A47.2 trillion) debt ceiling with just 10 days before a possible default, but vowed to keep talking.

“The resumption of debt ceiling negotiations spurred some hopes despite distinct risks of brinkmanship and blame-shifting remaining on the cards,” said Mizuho economist Vishnu Varathan.

“Without real action on that front, hawkish Fed speak has (had) some sway on markets,” he said, noting some pressure on US Treasuries that has also leant support to the dollar.

Ten-year and two-year US yields are near highs not seen since March, as traders start pushing back expectations for US rate cuts from July towards November or December.

Minneapolis Federal Reserve President Neel Kashkari said overnight that it was a “close call” as to whether he’d vote to hike again or pause at next month’s meeting.

St. Louis Fed President James Bullard said another 50 basis points of hikes might be required.

Benchmark 10-year Treasury yields rose for a seventh straight session on the remarks to hit 3.728 per cent overnight, and held steady near that level in Asia.

Two-year yields were last at 4.328 per cent.

The US dollar tracked the move and hit a six-month high of 138.88 yen in the Asia session. The dollar was firm against most other currencies, and traded at $US1.0805 per euro and $US0.6650 per Australian dollar.

Japan’s manufacturing activity expanded for the first time in seven months in May, survey data on Tuesday showed, while the service-sector hit record growth, as the post-COVID recovery gains traction.

Purchasing Managers Index surveys are due in Europe, Britain and the United States later in the day and strong services growth is expected to hold the composite readings in expansionary territory.

Commodities were broadly steady, though US natural gas fell sharply overnight. Benchmark Brent crude futures rose 0.4 per cent to $US76.26 a barrel. Spot gold fell 0.4 per cent to $US1,960 an ounce. Overnight the S&P 500 was flat.