Markets steady as focus turns to debt bill approval
Investors are concerned the US debt-ceiling is a compromise that could have negative consequences
30 May 2023 - 11:58
byJoice Alves and Scott Murdoch
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
The dollar steadied after climbing to a two-month high and European stocks flattened on Tuesday as relief that a possible default by the US government had been averted gave way to concern that the deal could face a rocky path through Congress.
The dollar index and longer-dated Treasuries rallied as traders welcomed the deal to suspend Washington’s borrowing limit until January 2025 in exchange for caps on spending and cuts in government programmes.
But European stocks steadied after slipping in early trading, dented by uncertainty whether the Congress will approve the deal after a handful of hard-right Republican lawmakers said on Monday they would oppose the bill, though it is expected to pass.
Despite the initial risk-on sentiment on the deal announced on Saturday, investors also fear now that the agreement was a compromise that could have negative consequences.
“The US had a poor resolution to the debt ceiling negotiations with still a huge increase in government debt and no real cuts to spending, but [it] has relieved pressure for now,” said James Rosenberg, an adviser at broker Ord Minnett in Sydney.
“There’s still a huge disconnect between bond markets and equities,” he said, flagging that the bond market is pricing in recession in the US.
JB Were analysts said there could be up to $600bn worth of bill issuance in the next six to eight weeks.
The amount of the Treasury issuance and the economic implications are now being considered, according to Invesco’s Asia-Pacific global strategist David Chao.
“The announcement of a debt deal in the near term is a boost to market sentiment but it places pressure on growth due to the government spending cuts, the tighter liquidity conditions, but the flipside is the pressure on growth is doing the job for the Fed as it tries to cool the economy. It could place a dampening effect on inflation.”
The pan European Stoxx 600 index flattened after recording its biggest weekly decline in two months on Friday.
The Nikkei stock index rose 0.3%, after the Japanese benchmark hit a 33-year high on Monday on optimism over the US debt deal and a weaker yen, which helps the country’s exporters.
Hong Kong’s Hang Seng index and China’s CSI 300 Index closed little changed after tumbling to the lowest since November, with investors also remaining cautious ahead of China’s May manufacturing data due on Wednesday.
US futures were up 0.5% pointing to a start of the day in positive territory for Wall Street. Markets were closed on Monday for the Memorial Day holiday.
US 10-year bond yields dropped 8 basis points (bps) to 3.74%, while thirty-year yields fell 6bps to 3.91%. Bond yields move inversely to price.
The dollar index, which measures the greenback against six peers, flattened at 104.3 after rising to a two-month high. It was also trading near a six-month peak against the yuan.
The Hang Seng lost about 7% in May while the CSI 300 is down almost 5% as a result of China’s economy not recovering as quickly as expected from the lifting of the country’s pandemic restrictions in January.
“Everyone is looking at the disappointment in the performance of China equities recently and that is now creating negative investor sentiment,” said Jack Siu, Credit Suisse’s greater China chief investment officer.
“Investors are now more muted towards the reopening story of China and are contemplating their positions.”
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Markets steady as focus turns to debt bill approval
Investors are concerned the US debt-ceiling is a compromise that could have negative consequences
The dollar steadied after climbing to a two-month high and European stocks flattened on Tuesday as relief that a possible default by the US government had been averted gave way to concern that the deal could face a rocky path through Congress.
The dollar index and longer-dated Treasuries rallied as traders welcomed the deal to suspend Washington’s borrowing limit until January 2025 in exchange for caps on spending and cuts in government programmes.
But European stocks steadied after slipping in early trading, dented by uncertainty whether the Congress will approve the deal after a handful of hard-right Republican lawmakers said on Monday they would oppose the bill, though it is expected to pass.
Despite the initial risk-on sentiment on the deal announced on Saturday, investors also fear now that the agreement was a compromise that could have negative consequences.
“The US had a poor resolution to the debt ceiling negotiations with still a huge increase in government debt and no real cuts to spending, but [it] has relieved pressure for now,” said James Rosenberg, an adviser at broker Ord Minnett in Sydney.
“There’s still a huge disconnect between bond markets and equities,” he said, flagging that the bond market is pricing in recession in the US.
JB Were analysts said there could be up to $600bn worth of bill issuance in the next six to eight weeks.
The amount of the Treasury issuance and the economic implications are now being considered, according to Invesco’s Asia-Pacific global strategist David Chao.
“The announcement of a debt deal in the near term is a boost to market sentiment but it places pressure on growth due to the government spending cuts, the tighter liquidity conditions, but the flipside is the pressure on growth is doing the job for the Fed as it tries to cool the economy. It could place a dampening effect on inflation.”
The pan European Stoxx 600 index flattened after recording its biggest weekly decline in two months on Friday.
The Nikkei stock index rose 0.3%, after the Japanese benchmark hit a 33-year high on Monday on optimism over the US debt deal and a weaker yen, which helps the country’s exporters.
Hong Kong’s Hang Seng index and China’s CSI 300 Index closed little changed after tumbling to the lowest since November, with investors also remaining cautious ahead of China’s May manufacturing data due on Wednesday.
US futures were up 0.5% pointing to a start of the day in positive territory for Wall Street. Markets were closed on Monday for the Memorial Day holiday.
US 10-year bond yields dropped 8 basis points (bps) to 3.74%, while thirty-year yields fell 6bps to 3.91%. Bond yields move inversely to price.
The dollar index, which measures the greenback against six peers, flattened at 104.3 after rising to a two-month high. It was also trading near a six-month peak against the yuan.
The Hang Seng lost about 7% in May while the CSI 300 is down almost 5% as a result of China’s economy not recovering as quickly as expected from the lifting of the country’s pandemic restrictions in January.
“Everyone is looking at the disappointment in the performance of China equities recently and that is now creating negative investor sentiment,” said Jack Siu, Credit Suisse’s greater China chief investment officer.
“Investors are now more muted towards the reopening story of China and are contemplating their positions.”
Reuters
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Related Articles
Rand hits record low as ICC tells SA to arrest Putin
Oil prices gain on US debt deal
Asian stocks edge up as US debt deal boosts sentiment
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.