Asian markets mostly rallied after the Biden-McCarthy deal over US debt

Asian stocks are mostly higher after President Joe Biden and House Speaker Kevin McCarthy reached a final deal on an agreement to raise the US federal debt ceiling.

Tokyo, Sydney and Shanghai rose while Hong Kong fell. Markets in Seoul were closed for a holiday.

The US debt deal mitigated a potentially major threat to global markets. Biden and McCarthy worked over the weekend to secure enough support in Congress to pass the measure before the June 5 deadline and avert a disruptive federal default.

“The markets have so far reacted cautiously. Buoyed but cautious,” said Clifford Bennett, chief economist at ACY Securities, in a comment.

“This agreement merely defers the issue to potentially more politically friendly times after the presidential election in two years. Nothing is certain in this regard, and it is possible that the resolution will then be even more difficult than on this occasion,” said Bennett.

Tokyo's Nikkei 225 index was up about 2% in early trade but was trading 1.3% higher at 31,325. at noon. The S&P/ASX 200 in Sydney rose 1% to 7,228.60. The Shanghai Composite Index rose 0.2% to 3,218.26.

In Hong Kong, the Hang Seng fell 0.3% to 18,696.34.

US markets will remain closed on Monday for a public holiday. Investors are in for another busy week with US economic updates including consumer confidence and employment data.

On Friday, technology stocks made solid gains on Wall Street after chipmaker Marvell Technology rose a record-breaking 32.4% after the chipmaker announced it expects AI sales to at least double year-on-year in fiscal 2024. This follows Thursday's report from fellow chipmaker Nvidia, which gave a big forecast for upcoming AI-related sales.

The upbeat end of the week for major US indices comes amid lingering fears of persistently high inflation and generally weak corporate earnings.

The S&P 500 was up 1.3% to close at 4,205.45. The Dow Jones Industrial Average rose 1% to 33,093.34. The tech-heavy Nasdaq posted the largest gains, rising 2.2% to 12,975.69. The index rose 2.5% this week as artificial intelligence drew investor attention.

The revolutionary AI field has become a hot topic. Critics warn it's a possible bubble, but proponents say it could be the latest revolution to reshape the global economy. The country's financial regulator, the Consumer Finance Protection Bureau, said it is working to ensure companies comply with the law when using AI.

Wall Street and the broader economy already had a number of concerns before the US default risk was prominently featured on the list.

A key indicator of inflation, closely monitored by the Federal Reserve, came in higher than economists had expected in April.

Persistent inflationary pressures are making the Fed's fight against high prices more difficult. The central bank has been aggressively raising interest rates since 2022, but recently signaled it was likely to forego a rate hike at its mid-June meeting. The government's latest inflation report raises concerns about the Fed's next move.

The latest inflation data also highlighted the continued resilience of consumer spending which, together with the strong labor market, has been a key bulwark against a recession. The economy grew at a sluggish 1.3% annual rate from January to March and is expected to accelerate to a pace of 2% in the current April-June quarter.

The impact of inflation and fears of an impending recession have weighed on corporate earnings and forecasts. The latest round of corporate earnings is drawing to a close, with S&P 500 corporate earnings falling about 2%.

Cosmetics maker Ulta Beauty fell 13.4% after lowering its profit margin forecast. Discount retailer Big Lots fell 13.3% after reporting a much larger loss than analysts had expected in its most recent quarter.

Investors rewarded several companies that reported strong financial results. Gap rose 12.4% after the company reported strong earnings in the first quarter.

In other trading Monday, the US benchmark crude price rose 81 cents to $73.48 a barrel in electronic trading on the New York Mercantile Exchange. On Friday, the price rose 84 cents to $72.67 a barrel.

The dollar fell to 140.44 Japanese yen from 140.59 yen. The euro advanced to $1.0734 from $1.0724.

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