By Stella Qiu
SYDNEY (Reuters) – Asian stocks and Wall Street futures rose on Monday as a weekend agreement between U.S. President Joe Biden and House Speaker Kevin McCarthy to suspend the country’s debt ceiling government relieved investors, although concerns about China capped sentiment.
Europe is expected to open slightly higher, with pan-regional Euro Stoxx 50 futures up 0.2%. S&P 500 futures rose 0.3% while Nasdaq futures firmed 0.5%.
After weeks of negotiations, Congressional Republican McCarthy and Biden agreed on Saturday to avoid an economically destabilizing default by suspending the $31.4 trillion debt ceiling until 2025. The deal must now approve a Congress narrowly divided before the United States ran out of money to pay its debts in early June.
In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.2% as declines in Chinese and Hong Kong stocks offset gains elsewhere.
Elsewhere, the Tokyo Nikkei jumped 1.0% to a new 33-year high and Australian resource-heavy stocks gained 1.0%.
“There could be some initial relief that could push yields a little lower, as well as some upside in the US dollar, alongside equities. But the vagaries of getting the deal through Congress could put the brakes on (the optimism),” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.
“And beyond that, the overarching cash-squeezing implications of issuances aimed at bolstering the cash that is depleting at the Treasury can perversely boost yields and dampen equities. The dollar, however, can be a bid .”
Defying the bullish trend, Chinese bluechips lost 0.6% and Hong Kong’s Hang Seng index fell 0.8%, after weak earnings data from Chinese industrial companies added to signs of a slowdown. of the world’s second largest economy.
Cash U.S. Treasuries were off trade in Asia on Monday due to the Memorial Day holiday, while futures were broadly flat. Two-year yields hit a 2.5-month high at 4.6390% on Friday on market bets on higher Federal Reserve rates for longer.
US stocks rallied late last week on hopes of a debt ceiling deal and bets on artificial intelligence companies. The Dow Jones Industrial Average ended a five-day losing streak on Friday, while the Nasdaq Composite Index and S&P 500 closed at their highest levels since August 2022.
“We always thought there would be a resolution, and now we have it, which removes some of the uncertainty for the markets. But when we get past that, when the votes pass and when we come back from the Memorial Day, the question becomes what next?” said Tony Sycamore, market analyst at IG.
“Yes, we will get the relief rally in the short term, but then we have to start thinking about the June FOMC meeting, more rigid than expected inflation and money flowing out of the markets.”
The Fed’s favorite inflation indicator – the personal consumption expenditure (PCE) price index – came in stronger than expected on Friday. Coupled with strong consumer spending in the US, markets are now tilting towards a quarter-point hike from the Fed next month and see rates staying there for the rest of the year.
Over the coming week, US job openings and nonfarm payrolls data could influence the Fed’s thinking on the June decision. Economists polled by Reuters expect payrolls to have risen by 195,000 in May, from 253,000 the previous month.
In Turkey, the lira hovered at 20.05 against the dollar, just a touch above its record low of 20.06 hit on Friday, after President Tayyip Erdogan claimed victory in the country’s presidential election , extending his increasingly authoritarian rule for a third decade.
Elsewhere in the currency markets, the dollar index – a measure of the greenback against its major peers – was a little lower at 104.17 as risk-sensitive currencies rebounded. However, it is still close to a two-month high on Friday.
Oil prices rallied early on Monday. Brent crude futures climbed 0.8% to $77.47 a barrel, while US West Texas Intermediate crude was at $73.25 a barrel, also up 0.8%.
Gold prices were little changed at $1,945.93 an ounce.
(Reporting by Stella Qiu and Tom Westbrook; Editing by Shri Navaratnam and Sam Holmes)