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Markets Update: Global Markets Mixed as Investors Weigh Debt Limit
Today's important market events:
[CHF] GDP (QoQ/YoY - Q1) - 09:00 CEST
[USD] CB Consumer Confidence (May) - 16:00 CEST
Global Markets Roundup: 30 May 2023
US President Biden and House Speaker Kevin McCarthy Reach Agreement in Principle to Raise Debt Limit US President Joe Biden and House Speaker Kevin McCarthy reached an agreement in principle on Saturday to raise the debt limit by 19 months until January 1, 2025.
The deal, which still needs to be approved by Congress, would avert a first-ever US government default. The agreement was reached after weeks of negotiations between the White House and Republicans. It calls for a two-year suspension of the debt limit, which is currently $31.4 trillion.
In exchange, Republicans are seeking cuts to government spending and new work requirements for some recipients of government aid.
The deal is a major victory for Biden, who had been facing a growing threat of default. It also represents a significant concession by Republicans, who had previously refused to raise the debt limit without significant spending cuts.
The agreement is expected to be met with mixed reactions. Some will argue that it is a necessary compromise to avert a financial crisis. Others will argue that it is a giveaway to special interests and that it does not do enough to address the long-term fiscal challenges facing the United States.
Markets Respond Positively to Debt Limit Deal
Global markets reacted positively to the news of the debt limit deal. The US dollar index (DXY) rose against its major peers, while US equity futures saw mild gains.
The deal is seen as a positive development for the global economy, as it removes the threat of a US government default. A default would have had a significant impact on financial markets and could have led to a global recession.
Geopolitical Risks Remain
Despite the positive news on the debt limit, geopolitical risks remain a concern for investors. Russia launched a large drone attack on Kyiv over the weekend, while it was recently reported that two residential buildings in the Russian capital Moscow were hit by drones.
The attacks are a reminder of the ongoing conflict in Ukraine and the potential for further escalation. Investors will be closely watching developments in the region in the coming days and weeks.
Other News In other news, Turkish President Recep Tayyip Erdogan won the election runoff on Sunday. His victory is a boost for his nationalist agenda and could lead to further tensions with the West. Spanish Prime Minister Pedro Sanchez called a snap general election on Sunday. The election is seen as a test of Sanchez's popularity and could lead to a change in government.
Global Markets Mixed as Investors Weigh Debt Limit Deal, Geopolitical Risks
Global markets were mixed on Tuesday as investors weighed the positive news of a debt limit deal in the United States against the ongoing geopolitical risks in Ukraine and China.
In the Asia-Pacific region, the ASX 200 was lacklustre amid losses in real estate and financials, while weak Building Approvals added to the glum mood. The Nikkei 225 was choppy but remained above the 31,000 level after BoJ Governor Ueda reiterated a dovish message. The Hang Seng and Shanghai Comp. were pressured as the Hang Seng China Enterprises Index entered bear market territory which added to the jitters from the already cautious mood heading into tomorrow’s PMI data.
In the United States, equity futures were kept afloat but with trade uneventful following the holiday lull. European equity futures are indicative of a marginally higher open with the Euro Stoxx 50 +0.1% after the cash market closed down 0.4% yesterday.
In FX, DXY initially softened overnight alongside a downtick in US yields but then recovered against its major peers and as the CNY continued to depreciate. Meanwhile, Barclays, Citi and Credit Agricole month-end rebalancing estimates showed roughly balanced USD flows across the board against G10 FX although Citi’s model also pointed to EUR buying and JPY selling versus the greenback.
EUR/USD gave back its early gains to test support at the 1.0700 level, while newsflow from the bloc was light although Spanish PM Sanchez called a snap general election for July 23rd after his Socialist party suffered a defeat in local and regional elections. GBP/USD was indecisive owing to the dollar swings and after the recent holiday closures on both sides of the pond. USD/JPY weakened in early trade to test a floor at the 140.00 level where support held and the dollar rebounded.
Antipodeans were choppy alongside the mixed risk appetite and with AUD pressure as USD/CNH breached 7.1000. PBoC set USD/CNY mid-point at 7.0818 vs exp. 7.0821 (prev. 7.0575)
Turkish President Erdogan won the election runoff on Sunday with 52.1% of votes vs Kilicdaroglu at 47.9% of votes. Erdogan said they were given the responsibility to rule for the next 5 years, while Kilicdaroglu said he will continue with his struggle and that it was the most unfair election in years.
Riksbank’s Jansson said the SEK could be a serious problem and should not continue to weaken on a trend basis, while he added they are a long way from a currency intervention which in his view would be a last resort. Jansson stated that he doesn’t like currency intervention as a plan in the current monetary policy regime and it would have to be an exceptional situation, as well as noted there is a question on how effective a currency intervention would be. Furthermore, he said their main tools are the interest rate and the asset portfolio, while he is ready to raise rates as much as needed to deal with inflation, according to Reuters.
FIXED INCOME
10yr UST futures were higher as yields retreated at the resumption of treasuries cash trade and after prices fully rebounded on Monday from the initial reaction to the debt ceiling deal. Bund futures extended on the prior day’s highs after rallying to above the 134.00 level. 10yr JGB futures were kept afloat but with upside capped after a relatively in-line 2yr auction.
COMMODITIES
Crude futures were choppy with price action at the whim of an indecisive dollar and China-related headwinds. OPEC Secretary General Al Ghais said OPEC will welcome back Iran’s full return to the market when sanctions are lifted and commented that all OPEC decisions are made in order to have a good balance between global oil demand and supply, according to Shana. Iranian President Raisi told OPEC Secretary General that he hopes oil producers can calm down the market and called for unity among its members, according to Reuters. Spot gold failed to sustain its initial mild advances as the greenback eventually recovered. Copper futures swung between gains and losses owing to the cautious mood across risk assets. Indonesia is putting a nickel product export tax on hold, according to a government official.
Looking Ahead Investors will be looking ahead to a number of key events in the coming week. These include the release of the Swiss KOF economic indicator, the Spanish Flash HICP inflation rate, and the EZ Economic Sentiment and Consumer Confidence reports. Investors will also be listening to speeches from Federal Reserve Bank of Richmond President Thomas Barkin and European Central Bank President Christine Lagarde.
General news - Information source from multiple newswires.
The article and the data is for general information use only, not advice!
The Trade Academy Team
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