Following weekend rumors of a deal that would prevent a disastrous US debt default, European stocks and oil prices gave up early Monday gains, while US stock futures held up well.
After both posting gains earlier in the day, Germany’s DAX (DAX) and France’s CAC 40 (CAC40) both concluded the day 0.2% lower. In Asia, the Nikkei 225 (N225) index of Japan closed at a 33-year high thanks to traders’ confidence regarding the debt ceiling agreement and a cheaper currency that helped exporters. This year, the index has increased by almost 20%.
Due to a holiday, the US and UK stock markets will be closed on Monday. S&P 500 futures increased by 0.3%, while Dow and Nasdaq futures also increased by about 0.35%. On news that President Joe Biden and Speaker of the US House of Representatives Kevin McCarthy were close to an agreement to allow the US government to continue paying its debts, US markets rose on Friday.
On Saturday, they came to a deal in principle to lift the debt ceiling for two years while limiting spending. The agreement brings the country back from the verge of a historic default, which, if it occurred, would destabilize the stock and bond markets. The US economy, as well as the world economy, would suffer tremendous harm.
The global oil benchmark, Brent crude futures, decreased 0.5% to $76.58 a barrel, reversing gains of a comparable size earlier in the day. The US benchmark, WTI crude, decreased by 0.2% to trade at $72.51 per barrel.
Turkey’s currency, meanwhile, hit a fresh record low of 20.10 to the US dollar. Tayyip Erdogan, the Turkish president, won the election on Sunday, extending his rule into a third decade. Erdogan stated to CNN ten days ago that if re-elected, he will keep up his unconventional policy of lowering interest rates to combat inflation.
Australia’s S&P/ASX 200 had earlier closed 0.9% higher in Asia Pacific. The Shanghai Composite in China went up 0.3%. The Hang Seng (HSI) Index in Hong Kong started the day higher but later reversed course to end the day 1% lower, hurt by declines in companies in the technology and real estate sectors. Due to a holiday, South Korean markets were closed.
Although the US debt accord has given the markets reason for hope, there is still more work to be done.
Now that Republicans control the House and Democrats control the Senate in Congress, both leaders must persuade their allies to support the agreement. Before June 5, when Treasury Secretary Janet Yellen predicts that the US would no longer be able to pay its payments, the agreement must be approved. Before June 5, when Treasury Secretary Janet Yellen predicts that the US would no longer be able to pay its payments, the agreement must be approved. After originally setting an earlier deadline of June 1, Yellen announced an amended timetable on Friday.
The deal appears to represent “a significant progress in the US debt ceiling situation,” according to Jun Rong Yeap, an analyst at IG. He claimed that Monday’s trade in Asia was a response to declining debt risks. The release of China’s PMI indices later this week is also being closely watched by international investors, he continued.
With $2 trillion in combined US Treasury holdings, China and Japan are the two countries with the highest foreign debt positions. Their economies would suffer greatly from a future US debt default.
