Asian investors traded nervously on Tuesday as they watched Washington, where lawmakers are due to vote this week on a deal to raise the U.S. debt ceiling and avoid a painful default.
President Joe Biden and House Speaker Kevin McCarthy struck a deal over the weekend that saw both sides compromise their positions, a week ahead of a June 5 deadline when the government is expected to run out of cash to pay its bills.
The news provided much-needed relief to markets, but now the two leaders must convince wavering parties on both sides to back the deal, with the House of Representatives voting on Wednesday, followed by the Senate.
Ultraconservative Republicans believe McCarthy should have provided much deeper spending cuts to raise the debt ceiling and allow the government to continue borrowing.
The left wing of the Democratic Party is equally unhappy that Biden has agreed to spending limits at all.
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Still, the couple said they were confident.
“I never say I’m sure what Congress is going to do. But I feel very good about it,” Biden said Monday, adding that he had spoken with lawmakers.
Asian markets were mixed in early trade on Tuesday.
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Hong Kong rose after four days of heavy losses, while there were also gains in Shanghai, Singapore, Seoul and Taipei, although Tokyo, Sydney, Wellington, Manila and Jakarta fell.
“The vote on the US debt ceiling is expected to start on Wednesday and there appears to be enough support to clear a passage,” said Tapas Strickland at National Australia Bank.
However, analysts pointed out that while the debt ceiling decision will remove one worry for markets, there are now worries about liquidity that could weigh on sentiment.
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They said the Treasury would have to sell more than $1 trillion in Treasuries to replenish its coffers to pay its bills, meaning a flood of sales that would take cash from the banking sector, raise short-term borrowing rates and put new pressure on the economy. the economy.
Investors are also gearing up for key US jobs data due on Friday, on fears that the strong reading will put further pressure on the Federal Reserve to continue raising interest rates as it struggles to contain inflation.
It showed last Friday that the bank’s preferred measure of inflation, the personal consumption expenditure index, rose 4.4 percent year-on-year in April, up from 4.2 percent a month earlier.
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The core index, excluding volatile food and energy prices, also rose, as did personal income and spending.
“We think this deal anchors a 25 basis point hike at the June 13-14 (policy) meeting, with banking sector stresses easing, a potential default was really the only thing that could.” prevented growth next month.
“More importantly, the rate cut before the end of the year is now fully discounted, as it should have been long ago.”
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Tokyo – Nikkei 225: Down 0.4 percent at 31,119.27 (break)
Hong Kong – Hang Seng index. UP 0.3 percent to 18,604.22
Shanghai – Composite: UP 0.3 percent to 3230.63
Pound/dollar: UP to $1.2374 from $1.2359 on Monday
EUR/USD UP at $1.0723 from $1.0715
USD/JPY: 140.05 yen, down from 140.27 yen
Euro/pound at 86.68 pence, down from 86.70 pence
West Texas Intermediate was up 0.7 percent at $73.20 a barrel
Brent North Sea crude was up 0.4 percent at $77.41 a barrel.
New York – Dow. Closed for the holidays
London – FTSE 100: Closed for holiday
— Bloomberg News contributed to this story —
dan/cwl:
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