Global stocks and oil prices surged on Monday as investors cautiously welcomed news of an agreement that could prevent a catastrophic default on US debt. Germany’s DAX and France’s CAC 40 showed early gains of 0.3% and 0.2%, respectively. In Asia, Japan’s Nikkei 225 reached a 33-year high, rising nearly 20% this year, boosted by optimism surrounding the debt ceiling deal and a weaker yen benefiting exporters.
US and UK markets were closed for a holiday, but Dow futures and S&P 500 futures climbed approximately 0.3%, with Nasdaq futures up 0.5%. On Friday, US markets made gains as reports surfaced of a nearing deal between President Joe Biden and US House of Representatives Speaker Kevin McCarthy, ensuring that the US government can continue to meet its financial obligations.
The agreement, reached in principle on Saturday, involves raising the debt ceiling for two years and implementing spending caps. This move pulls the United States back from the brink of a potentially historic default that would have disrupted global stock and bond markets and caused severe damage to the US and global economies. Brent crude futures, the global oil benchmark, rose 0.6% to $77.39 a barrel, while WTI crude, the US benchmark, gained 0.7% to trade at $73.15 a barrel.
Meanwhile, Turkey’s lira hit a record low of 20.07 against the US dollar. Turkish President Tayyip Erdogan secured victory in Sunday’s presidential election, extending his rule into a third decade. Erdogan had previously expressed his commitment to his unorthodox policy of cutting interest rates to combat inflation if re-elected.
In other parts of the Asia Pacific region, Australia’s S&P/ASX 200 closed 0.9% higher, China’s Shanghai Composite rose 0.3%, and Hong Kong’s Hang Seng Index initially opened higher but later closed 1% lower due to declines in technology and real estate stocks. South Korean markets remained closed for a public holiday.
While the US debt agreement has provided optimism to markets, there is still work to be done. Both President Biden and Speaker McCarthy must secure the support of their respective allies in Congress, with Republicans controlling the House and Democrats controlling the Senate. The deal must be passed by June 5, a crucial deadline set by Treasury Secretary Janet Yellen, who recently updated the timeline after initially setting an earlier deadline of June 1.
Analyst Jun Rong Yeap from IG noted that the agreement represents “significant progress in the US debt ceiling situation,” which positively influenced trading in Asia on Monday. Global investors are also keeping an eye on China’s upcoming PMI indexes to be released later in the week. China and Japan, as the largest foreign holders of American debt, would be greatly affected by a potential US debt default, given their combined ownership of $2 trillion in US Treasuries.