U.S. Stocks Recover as Trump Backs Democrat Deal on Debt Ceiling

U.S. stocks rebounded Wednesday after President Trump backed a Democratic plan to combine raising the debt ceiling with support for Hurricane Harvey. In reaching the deal, the president overrode pleas from Republican leaders who had urged him to abandon the proposal.

Trump Backs Plan to Raise the Debt Ceiling for Three Months

President Trump bucked his own party Wednesday and endorsed a Democratic deal to raise the debt ceiling by three months. In doing so, he avoided a prolonged showdown on Capitol Hill ahead of the Sept. 30 deadline.

According to sources, Republicans pushed for an 18-month debt limit extension before floating six months.

The deal, which was spearheaded by Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Polosi, will keep the government funded and provide much needed appropriations to the Hurricane Harvey relief efforts. Texas Governor Greg Abbott said on Sunday the total cost of recovery could be well north of $120 billion.

Wall Street Stabilizes

U.S. stocks stabilized Wednesday following their biggest rout in three weeks. The benchmark S&P 500 Index rose 0.3% to close at 2,465.54. Nine of 11 sectors contributed to the rally, with energy stocks climbing 1.6%.

The Dow Jones Industrial Average rose 54.33 points, or 0.3%, to close at 21,807.64. The blue-chip plunged more than 200 points on Tuesday in the first session back from Labor Day. The Nasdaq Composite Index climbed 0.3% to 6,393.31.

A measure of implied volatility known as the CBOE VIX fell back nearly 5% on Wednesday. Just 24 hours earlier, the fear index spiked more than 20% to reach its highest level in two weeks.

Attention Shifts to ECB

European stock futures were up sharply during the pre-market hours as investors turned their attention to an upcoming central bank meeting. The European Central Bank (ECB) is scheduled to deliver its rate verdict at 11:45 GMT. Although no changes are expected, the central bank is expected to upgrade its growth forecasts while downgrading its inflation outlook. Markets will be closely monitoring ECB President Mario Draghi’s remarks for clues about the future path of monetary policy.

A surging euro is complicating the ECB’s plan to begin normalizing monetary policy. The delicate balancing act will likely be reflected in Draghi’s speech on Thursday.

Since June, the euro has appreciated nearly 7% against the dollar. Bank of America Merrill Lunch says that a 10% appreciation of the currency removes 40-50 basis points from medium-term inflation forecasts.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi