- Asian stock markets:
- Nikkei rose 1% to hit new 33-year high, US futures
- The dollar continued to rise, hitting a 6-month high against the yen
- Treasuries closed, oil prices soared
- Markets are again pricing in a Fed rate hike next month
SYDNEY, May 29 (Reuters) – Asian shares and Wall Street futures rose on Monday as U.S. President Joe Biden and House Speaker Kevin McCarthy struck a weekend deal to suspend the government’s debt ceiling, though worries about China eased investors.
Pan-regional Euro Stoxx 50 futures rose 0.2%, with Europe set to open slightly higher. S&P 500 futures rose 0.3%, while Nasdaq futures were 0.5% firmer.
After weeks of negotiations, Congressional Republicans McCarthy and Biden agreed Saturday to avoid an economically disruptive default by suspending the $31.4 trillion debt ceiling until 2025. Loans at the beginning of June.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) rose 0.2%, as declines in Chinese and Hong Kong shares offset gains seen elsewhere.
Elsewhere, Tokyo’s Nikkei (.N225) rose 1.0% to hit a fresh 33-year high and Australia’s resource-heavy shares (.AXJO) added 1.0%.
“An initial sliver of relief might send some US dollar pump-up, along with equities, a little lower yields. But variations in pushing the deal through Congress could hamper (confidence),” Vishnu Varadhan said. Head of Economics at Mizuho Bank in Singapore.
“Beyond that, the overarching effects on liquidity could be raising liquidity, distorting yields and lowering stocks, to raise money that runs too low in Treasuries. However, the dollar could be a bargain.”
China’s bluechips ( .CSI300 ) fell 0.6% and Hong Kong’s Hang Seng Index ( .HSI ) fell 0.8%, bucking a volatile trend after weak profit data from Chinese industrial firms added to signs of flagging in the world’s second-largest economy.
Due to the Memorial Day holiday, cash US Treasuries were not trading in Asia on Monday, while futures were broadly flat. The two-year yield hit a 2-1/2-month high of 4.6390% on Friday in long-term market bets on Federal Reserve interest rates.
U.S. stocks rallied last weekend on hopes of a debt ceiling deal and bets on artificial intelligence firms. The Dow Jones Industrial Average (.DJI) snapped a five-day losing streak on Friday, while the Nasdaq Composite (.IXIC) and S&P 500 (.SPX) closed at their highest levels since August 2022.
“We always thought there would be a resolution, and now we’ve got it, so that removes some of the uncertainty for the markets. But once that gets passed, when the votes are passed and we come back from Memorial Day, the question is what’s next?” said Tony Sycamore, market analyst at IG.
“Yes, we’ll get a relief rally in the short term, but we have to start thinking about the June FOMC meeting, inflation sticking more than expected, and money exiting the markets.”
The central bank’s preferred measure of inflation — 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 toward a quarter-point hike from the Fed next month and rates to remain there for the rest of the year. .
Next week, US jobs and non-farm payrolls data could influence the Fed’s thinking on the June decision. Economists polled by Reuters had expected payrolls to rise to 195,000 in May, up from 253,000 in the previous month.
In Turkey, the lira rose to 20.05 against the dollar, slightly above Friday’s record low of 20.06, after President Tayyip Erdogan won the country’s presidential election, extending his increasingly authoritarian rule into a third decade.
Elsewhere in currency markets, the dollar index – a gauge of the greenback against its major peers – was a touch lower at 104.17 as risk-sensitive currencies rebounded. However, on Friday it came close to hitting its highest level in two months.
Oil prices rose early on Monday. Brent crude was up 0.8% at $77.47 a barrel, while US West Texas Intermediate crude was at $73.25 a barrel, up 0.8%.
Gold prices were little changed at $1,945.93 an ounce.
Reporting by Stella Q and Tom Westbrook; Editing by Sri Navaratnam and Sam Holmes
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