Stocks are rising due to the US debt ceiling agreement, but China is falling

SYDNEY (Reuters) – Asian stocks and Wall Street futures rose on Monday after a weekend deal by U.S. President Joe Biden and House Speaker Kevin McCarthy to suspend the government’s debt ceiling eased investors, although concerns about China dampened sentiment.

Europe is set to open slightly higher, with the region-wide Euro Stoxx 50 futures up 0.2%. S&P 500 futures rose 0.3% while Nasdaq futures rose 0.5%.

After weeks of negotiations, Republican McCarthy and Biden agreed in Congress on Saturday to avert a destabilizing economic default by suspending the $31.4 trillion debt ceiling through 2025. Debt in early 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 Nikkei (.N225) rose 1.0% to a 33-year high and Australian Heavy Shares (.AXJO) rose 1.0%.

“There may be an initial bit of relief that could lead to yields being slightly lower along with some rally in the US dollar, along with equities. But the volatility in pushing the deal through Congress could hamper (optimism),” Vishnu Varathan said. Head of the Economics Department at Mizuho Bank in Singapore.

“Furthermore, the overriding spillover of liquidity pressures from issuances to boost Treasury liquidity that is too low could reversibly boost yields and discourage equities. Dollars, however, may be offered.”

Challenging the upside, China Chart (.CSI300) lost 0.6% and Hong Kong’s Hang Seng Index (.HSI) fell 0.8%, after weak earnings data for Chinese industrial companies added signs of weak momentum in the world’s second-largest economy.

US Treasurys were non-trading 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 that the Fed will be rising for longer.

US stocks rose at the end of last week on hopes of a debt ceiling deal and bets on artificial intelligence companies. The Dow Jones Industrial Average (.DJI) ended a five-day losing streak on Friday, while the Nasdaq Composite (.IXIC) and the Standard & Poor’s 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 that, and that removes some of the uncertainty for the markets. But as 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 a comfortable recovery in the short term but then we have to start thinking at the June FOMC meeting, about inflation becoming more consistent than expected, draining money from the markets.”

The Fed’s preferred measure of inflation – the Personal Consumption Expenditure Price Index – came in stronger than expected on Friday. Given strong consumer spending in the US, markets are now leaning towards a quarter point increase from the Fed next month and see rates stay there for the rest of the year. .

Next week, US job vacancies and non-farm payroll data may influence the Fed’s thinking about the June decision. Economists polled by Reuters expect payrolls likely rose by 195k in May, slowing from 253k in the previous month.

In Turkey, the lira hovered at 20.05 against the dollar, just above a record low of 20.06 on Friday, after President Recep 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 US currency against its major peers – fell to 104.17 as risk-sensitive currencies saw a rebound. However, it is still close to the two-month high it 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 hit $73.25 a barrel, also up 0.8%.

Gold prices changed little at $1945.93 an ounce.

(Reporting by Stella Keogh and Tom Westbrook) Editing by Shri Navaratnam and Sam Holmes

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