Stocks rise on US debt ceiling deal, but China withdraws

  • Asian stock markets:
  • Nikkei rises 1% to new 33-year high, US futures up
  • Dollar remains high, hits 6-month high against yen
  • Cash Treasuries closed, oil prices rise
  • Markets back to price in Fed rate hike next month

SYDNEY, May 29 (Reuters) – Asian shares and Wall Street futures rose on Monday as a weekend deal between U.S. President Joe Biden and House Speaker Kevin McCarthy to suspend the government’s debt ceiling brought relief to investors, although China concerns curbed 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 gained 0.5%.

After weeks of negotiations, Congressman McCarthy and Biden agreed Saturday to avert an economically destabilizing default by suspending the $31.4 trillion debt ceiling until 2025. The deal must now clear a narrowly divided Congress before the United States runs out of money to pay its due at the beginning of June.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) rose 0.2%, with declines in Chinese and Hong Kong shares offsetting gains seen elsewhere.

Elsewhere, Tokyo’s Nikkei (.N225) rose 1.0% to a new 33-year high, and Australia’s resource-heavy shares (.AXJO) rose 1.0%.

“There could be an initial sliver of relief that could send yields a tad lower along with some rise in the US dollar, along with stocks. But the vagaries of pushing the deal through Congress could hold back (the optimism),” said Vishnu Varathan, chief economist at Mizuho Bank in Singapore.

“And beyond that, the overall liquidity-squeezing implications of issues to shore up cash that is very low in Treasuries could perversely raise yields and dampen equities. However, the dollar could be bid up.”

Despite the bullish trend, China’s bluechips (.CSI300) lost 0.6% and Hong Kong’s Hang Seng Index (.HSI) fell 0.8%, after weak earnings data for China’s industrial companies added to signs of slowing global second largest economy.

Cash U.S. Treasuries were untraded in Asia on Monday, due to the Memorial Day holiday, while futures were broadly flat. Two-year yields hit a 2-1/2-month high of 4.6390% on Friday on market bets on longer Federal Reserve interest rates.

US stocks rose late last week on hopes of a deal on the debt ceiling 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 the 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’ve got it, so that removes some of the uncertainty for the markets. But when we get past that, when the votes are 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 FOMC meeting in June, about inflation being stickier than expected, and money being drained from the markets.”

The Fed’s preferred inflation gauge – the personal consumption expenditures (PCE) price index – came in stronger than expected on Friday. Coupled with strong US consumer spending, markets are now leaning towards a quarter-point hike from the Fed next month and see interest rates staying there for the rest of the year. .

In the coming week, US job vacancies and non-farm payrolls data could influence the Fed’s thinking for the June decision. Economists polled by Reuters expect payrolls to likely rise by 195,000 in May, slowing from 253,000 the month before.

In Turkey, the lira hovered at 20.05 against the dollar, just a touch above Friday’s record low of 20.06, after President Tayyip Erdogan secured victory in the country’s presidential election, extending his increasingly authoritarian rule into a third decade.

Elsewhere in currency markets, the dollar index – a measure of the greenback against its major rivals – was a touch lower at 104.17 as risk-sensitive currencies rebounded. However, it is still close to a two-month high hit on Friday.

Oil prices rose early on Monday. Brent crude futures rose 0.8% to $77.47 a barrel, while US West Texas Intermediate crude was at $73.25 a barrel, also up 0.8%.

Gold prices were little changed at $1,945.93 an ounce.

Reporting by Stella Qiu and Tom Westbrook; Editing by Shri Navaratnam and Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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