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A look ahead in European and global markets from Vidya Ranganathan

U.S. and U.K. markets returned from their long weekend with a sense of ambivalence on Tuesday, happy that the weekend resulted in a U.S. debt ceiling deal and yet worried about how the deal will fare in Congress.

More details and clarity are expected in Washington on a tentative agreement to suspend the $31.4 trillion federal debt ceiling until January 2025 in exchange for cuts in spending and government programs. Even before the festivities began, several hard-right Republican lawmakers said they would oppose it.

That means the bipartisan 99-page bill, which still needs approval in both houses of Congress, could face a rocky road until the US runs out of money next week.

Meanwhile, Spanish Prime Minister Pedro Sanchez surprised everyone, even those within his own government, by taking “personal responsibility” for Sunday’s defeat in regional elections and calling for snap elections next week.

It appeared to be an attempt to undercut his conservative opponents and give his flagship Socialist Party the best chance to hold on to power until its support waned even further.

In the first trade in US debt markets since the debt ceiling deal, longer-dated Treasuries rose in Asia, pushing the benchmark 10-year yield up 6 basis points to 3.76%.

But the bid-offer spread was wide in Asia as investors balanced their nerves over the deal’s acceptance, the possibility that the Treasury could issue more than $1 trillion in bills in coming months to replenish its coffers and doubts that the Fed will have to raise prices further.

Asian shares rose, and futures also pointed to small gains in Europe and the United States. The dollar is holding steady around its strongest level in more than two months against a basket of major currencies.

Aside from the debt deal, investors have nothing else on their minds. Spain kicks off a week of European inflation readings, all of which should show some moderation in prices and yet not enough to change expectations for policy tightening.

Reuters Graphics Reuters Graphics

The main developments that can affect the markets on Tuesday:

Speakers: Richmond Fed President Barkin (a non-FOMC voter), representatives of SWFs and the SWF industry gather in London for the World Wealth Conference.

Data: US Conference Board Consumer Confidence Index, EU Consumer Confidence, US House Price Indices, Dallas Fed Manufacturing Activity (May), Sweden Q1 GDP, Switzerland Q1 GDP.

Earnings: Manchester United, Hewlett-Packard

Reporting by Vidya Ranganathan; Edited by Edmund Claman

Our standards. Thomson Reuters Trust Principles.

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