Global stocks rise on hopes for US debt deal
Shanghai, Tokyo, Seoul, Sydney and Hong Kong advanced; Wall St futures up, while London, Frankfurt and Paris opened higher
Global stock markets and Wall Street futures rose on Thursday on hopes US political leaders can reach agreement to avoid a potentially disastrous default on government debt. London and Paris opened higher. Shanghai, Tokyo and Hong Kong advanced. Oil prices edged lower. Wall Street rallied on Wednesday after President Joe Biden expressed confidence America will not default despite lack of agreement on Republican demands for cuts in aid to poor families in exchange for raising the amount the government can borrow.
“Markets are now fully pricing an in-time resolution of the crisis,” said Clifford Bennett of ACY Securities in a report.
“No one wants to sell ahead of an announcement of a deal being made.” In early trading, the FTSE in London rose 0.7 per cent to 7,776.24. The DAX in Frankfurt gained 1.5 per cent to 16,187.47 and the CAC 40 in Paris advanced 0.9 per cent to 7,468.73. On Wall Street, futures for the benchmark S and P 500 index and the Dow Jones Industrial Average were up 0.1 per cent. On Wednesday, the S and P 500 and the Dow both rose 1.2 per cent. The Nasdaq composite gained 1.3 per cent. Stocks of companies that get much of their revenue from the federal government rose. Military contractor Lockheed Martin climbed 2.1per cent. Northrop Grumman gained 2.7per cent.
Speaker Kevin McCarthy of the House of Representatives said Tuesday the two sides were far apart but could reach a deal by the end of the week. The US government will run out of cash if they don't agree by June 1 to increase its borrowing limit. Any disruption in US government borrowing and debt payments could send shockwaves through the global financial system. Treasury debt is regarded as the world's safest asset and influences the price of private sector borrowing. In Asia, the Shanghai Composite Index gained 0.4per cent to 3,297.31 and the Nikkei 225 in Tokyo advanced 1.6 per cent to 30,573.93.
The Hang Seng in Hong Kong rose 0.9per cent to 19,727.25. The Kospi in Seoul was 0.8per cent higher at 2,515.40 and Sydney's S&P-ASX 200 added 0.5 per cent to 7,236.80. India’s Sensex was up less than 0.1 per cent at 61,57.39. New Zealand and Southeast Asian markets also rose. In Washington, legislators and the White House are arguing over Republican demands for cuts, curbs on spending growth or work requirements for programs that help poor families pay for food, rent and medical care.
The Republican plan also would block Biden's proposal to forgive some student debts and would repeal tax credits to promote use of clean energy and combat climate change. Traders already expected at least a brief US recession this year following interest rate hikes to rein in stubbornly high inflation by cooling business activity. Investors also worry about the health of global banks following three high-profile failures in the United States and one in Switzerland. Banks have been squeezed by the unexpectedly fast run-up in interest rates, which caused the market prices of bonds on their books to fall.
On Wednesday, Western Alliance Bancorp recovered some of its losses after it gave an update on its deposit levels. It jumped 10.2 per cent but still is down 41.6 per cent for the year. PacWest Bancorp, another bank under heavy scrutiny, rose 21.7 per cent to trim its loss for the year to about 75.8 per cent. In energy markets, benchmark US crude lost 33 cents to $72.50 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.97 on Wednesday to $72.83. Brent crude, the price basis for international oil trading, declined 38 cents to $76.58 per barrel in London. It gained $2.05 the previous session to $76.96. The dollar advanced to 137.75 yen from Wednesday's 137.61 yen. The euro declined to $1.0815 from $1.0838. (AP)