A look at the day ahead in U.S. and global markets from Yoruk Bahceli.

Markets are heading into the weekend basking in optimism that a debt ceiling deal to avert a catastrophic U.S. Treasury default will be struck soon.

All eyes are on Sunday, when President Joe Biden holds a press conference. His team have reported progress in talks and House Speaker Kevin McCarthy has said a deal is "doable" by Sunday.

Look at any weekly chart and a flurry of assets are set for stellar weekly performances.

The S&P 500 is up 1.8% this week, set for its best week since end-March when markets were in panic mode around a banking crisis dragging down the economy. It was also set to open higher on Friday.

U.S. regional bank stocks are up 8.5%, set for their biggest weekly rise since January 2022 -- cheering Wednesday's strong deposit growth at Western Alliance Bancorp, after two weeks of sharp falls.

One-month Treasury bill yields -- at risk of non-payment without a debt ceiling deal -- have dropped this week after three consecutive weeks of rising.

And two-year U.S. Treasury yields, holding near one-month highs, are set for their biggest weekly jump since end-March -- a sign that the doom and gloom overshadowing markets since Silicon Valley Bank's collapse is ebbing.

Economic data meanwhile points to a still tight labour market, with jobless benefits claims falling more than expected last week.

Fed speakers also sounded the alarm; Dallas Fed President Lorie Logan and St Louis Fed President James Bullard said on Thursday U.S. inflation doesn't look like it's cooling fast enough to merit a rate hike pause.

So with the likely aversion of a U.S. default and inflationary pressures back in focus, traders now price in 45 basis points of rate cuts by the end of the year, down from 55 basis points early Thursday.

The chances of a June hike have also risen to one-in-three, from one-in-ten a week ago.

But for all the optimism over a debt ceiling deal, investors must beware of the uncertainty around what an agreement will entail and its ramifications for the U.S. economy.

Republican politicians are after hefty spending cuts just as the fastest hiking cycle in decades still makes itself felt on the economy.

While their demands are no doubt under negotiation, a deal risks last-minute opposition from the hard line House Freedom Caucus which insists on "robust" spending cuts.

Don't forget, in one estimate earlier in May, the Senate Budget Committee was told U.S. GDP growth would be 1.61% in 2024 if Republican spending cut demands were enacted, compared with 2.23% otherwise, and lead to 790,000 fewer jobs.

Key developments that should provide more direction to U.S. markets later on Friday:

* Central bank speakers: Fed chairman Jerome Powell, New York Fed President John Williams, Fed Governor Michelle Bowman

* Earnings: Foot Locker, Deere & Co

* Credit ratings: Moody's reviews Italy

(Reporting by Yoruk Bahceli; Editing by Christina Fincher)