LONDON: Global stock markets experienced instability on Tuesday as traders anxiously awaited a crucial vote in Congress to raise the US debt ceiling and avoid a potentially devastating default. The deal, reached between President Joe Biden and House Speaker Kevin McCarthy over the weekend, showed concessions from both sides in an effort to prevent the government from running out of cash to fulfill its financial obligations by the June 5 deadline.
While the agreement provided some relief to the markets, uncertainties persisted as leaders faced the challenge of rallying support from wavering lawmakers on both sides of the political spectrum. The House is expected to vote on Wednesday, followed by the Senate.
Susannah Streeter, the Head of Money and Markets at stockbroker Hargreaves Lansdown, said, “Agreement may have been inked on the debt ceiling, but it is not fully calmed nervousness on financial markets.” She noted the rising dissenting voices from both conservatives who believe more significant spending cuts should accompany the debt ceiling increase and progressives who are dissatisfied that any spending limits were agreed upon.
Nevertheless, President Biden and House Speaker McCarthy expressed optimism regarding the outcome of the vote. Biden stated, “I never say I am confident what the Congress is going to do. But I feel very good about it,” adding that he had been in communication with lawmakers.
Asian and European Markets Display Mixed Performance
Asian and European markets displayed a mixed performance on Tuesday, while Wall Street, closed for Memorial Day on Monday, was set to react to the news upon opening. Shanghai and Hong Kong witnessed slight gains after recent losses caused by concerns about the Chinese economy’s post-lockdown recovery. Tokyo, Singapore, Seoul, and Mumbai also saw positive movements, but Sydney, Wellington, Taipei, Manila, Bangkok, and Jakarta experienced declines.
As dealers returned from a long weekend, London observed a decline in stock prices, and losses were recorded in Paris, although Frankfurt saw gains.
Analysts noted that while the resolution of the debt ceiling issue would alleviate one concern for the markets, liquidity concerns might arise and impact investor sentiment. The US Treasury will need to sell over $1 trillion in Treasury bills to replenish its reserves, leading to a surge in sales that could absorb liquidity from the banking sector and exert additional pressure on the economy.
Key Figures at 1040 GMT:
London (FTSE 100): Down 0.4 percent at 7,599.22 points
Paris (CAC 40): Down 0.2 percent at 7,286.18
Frankfurt (DAX): Up 0.6 percent at 16,046.73
Euro STOXX 50: Up 0.3 percent at 4,334.85
Tokyo (Nikkei 225): Up 0.3 percent at 31,328.16 (close)
Hong Kong (Hang Seng Index): Up 0.2 percent at 18,595.78 (close)
Shanghai (Composite): Up 0.1 percent at 3,224.21 (close)
In currency markets:
Euro/dollar: Down at $1.0698 from $1.0708 on Monday
Dollar/yen: Up at 140.61 yen from 140.45 yen
Pound/dollar: Down at $1.2374 from $1.2355
Euro/pound: Down at 86.45 pence from 86.66 pence
Crude oil prices:
West Texas Intermediate: Down 1.7 percent at $71.45 per barrel
Brent North Sea crude: Down 1.9 percent at $75.63
