Asian shares and Wall Street futures rose on Monday as a weekend deal by U.S. President Joe Biden and House Speaker Kevin McCarthy to suspend the government’s debt ceiling provided relief for investors although China worries capped sentiment.
Europe is set to open slightly higher, with pan-regional Euro Stoxx 50 futures up 0.2%. S&P 500 futures rose 0.3% while Nasdaq futures firmed 0.5%.
After weeks of negotiations, congressional Republican McCarthy and Biden agreed on Saturday to avert an economically destabilising default by suspending the $31.4 trillion debt ceiling until 2025. The deal now has to clear a narrowly divided Congress before the United States runs out of money to pay its debts in early June.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.2%, with falls in Chinese and Hong Kong shares offsetting gains seen elsewhere.
Elsewhere, Tokyo’s Nikkei (.N225) surged 1.0% to a fresh 33-year high and Australia’s resources heavy shares (.AXJO) gained 1.0%.
“There may be an initial sliver of relief that may send yields a tad lower along with some U.S. dollar bump-up, alongside equities. But the vagaries of pushing the deal through Congress may hold back (the optimism),” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.
“And beyond that, the overriding implications on liquidity squeeze from issuances to bolster cash that is running very low at the Treasury may perversely elevate yields and dampen equities. The dollar, though, may be bid.”
Defying the bullish trend, China’s bluechips (.CSI300) lost 0.6% and Hong Kong’s Hang Seng index (.HSI) dropped 0.8%, after weak profit data for China’s industrial firms added to signs of flagging momentum in the world’s second-biggest economy.
Cash U.S. Treasuries were untraded in Asia on Monday, owing to the Memorial Day holiday, while futures were broadly steady. Two-year yields hit a 2-1/2 month high of 4.6390% on Friday on market bets of higher Federal Reserve rates for longer.
U.S. shares rallied at the end of last week on hopes of a debt ceiling deal and bets on artificial intelligence firms. The Dow Jones Industrial Average (.DJI) ended a five-day losing streak on Friday, while the Nasdaq Composite Index (.IXIC) and S&P 500 (.SPX) closed at their highest levels since August 2022.
“We always thought there was going to be a resolution, and now we have got that, so that removes some of the uncertainty for markets. But when we get past that, when the votes get passed and when we come back from Memorial Day, the question becomes what next?” said Tony Sycamore, market analyst at IG.
“Yes, we will get the relief rally in the short-term but then we have to start thinking about the June FOMC meeting, about inflation being stickier than expected, and the money being drained out of the markets.”
The Fed’s preferred inflation gauge – the personal consumption expenditures (PCE) price index – came in stronger than expected on Friday. Taken together with strong U.S. consumer spending, markets are now leaning towards a quarter-point hike from the Fed next month and see rates staying there for the rest of the year. .
In the week ahead, U.S. job openings and non-farm payrolls data could influence the Fed’s thinking for the June decision. Economists polled by Reuters expect payrolls likely rose 195,000 in May, slowing from 253,000 the prior month.
In Turkey, the lira hovered at 20.05 against the dollar , just a touch above its record low of 20.06 hit on Friday, after President Tayyip Erdogan secured victory in the country’s presidential election, extending his increasingly authoritarian rule into a third decade.
Elsewhere in the currency markets, the dollar index – a measure of the greenback against its major peers – was a touch lower at 104.17 as risk-sensitive currencies staged a rebound. However, it is still close to a two-month high hit on Friday.
Oil prices rallied early Monday. Brent crude futures climbed 0.8% to $77.47 a barrel, while U.S. West Texas Intermediate crude was at $73.25 a barrel, also up 0.8%.
Gold prices were little changed at $1,945.93 per ounce.
