BEIJING (`) – Asian stock markets followed a Wall Street surge on Thursday on hopes that US political leaders can reach an agreement to avoid a potentially catastrophic sovereign debt default.
Shanghai, Tokyo, Hong Kong and Sydney made progress. Oil prices have fallen slightly.
Wall Street rallied on Wednesday after President Joe Biden expressed confidence that “America will not default” despite no agreement on Republican calls for cuts in aid to poor families to fund food, medical care and rent was obtained in exchange for an increase in the amount of credit the government can borrow.
“Markets are now fully calculating with a timely resolution to the crisis,” ACY Securities’ Clifford Bennett said in a report. “No one wants to sell before a deal is announced.”
House Speaker Kevin McCarthy said on Tuesday the two sides are far apart but could reach an agreement by the end of the week. The US government will run out of money if it doesn’t agree to raise the credit limit by June 1.
Any disruption in US government borrowing and debt service could send shock waves through the global financial system. Government bonds are considered the safest asset in the world and influence the price of private sector borrowing.
The Shanghai Composite Index rose 0.6% to 3,302.46 and Tokyo’s Nikkei 225 rose 1.5% to 30,533.64. Hong Kong’s Hang Seng rose 1.3% to 19,807.06.
Seoul’s Kospi rose 0.6% to 2,509.30 and Sydney’s S&P-ASX 200 rose 0.6% to 7,239.60.
The markets of New Zealand and Southeast Asia also grew.
On Wall Street, the leading index S&P 500 rose 1.2% to 4,158.77 on Wednesday.
The Dow Jones Industrial Average rose 1.2% to 33,420.77. The Nasdaq Composite was up 1.3% to 12,500.57.
Shares of companies that get much of their revenue from the federal government and therefore may have a lot to lose if they can’t pay their bills, rose on Wednesday. Military conglomerate Lockheed Martin rose 2.1%. Northrop Grumman gained 2.7%.
Negotiators in Congress and the White House are at odds over Republican calls for cuts, a curb on spending growth or labor requirements for social programs. The Republican plan would block Biden’s proposal to forgive some student debt and remove tax credits to encourage clean energy use and fight climate change.
Traders were expecting at least a brief recession in the US this year after rate hikes were expected to stem stubbornly high inflation by slowing business activity.
Investors are also worried about the health of global banks after three high profile bankruptcies in the US and one in Switzerland. The unexpectedly rapid increase in interest rates hit the banks, causing the market prices of the bonds on their books to fall.
Western Alliance Bancorp recouped some of its losses on Wednesday after announcing an update to its deposit levels. It rose 10.2% but is still down 41.6% for the year.
PacWest Bancorp, another bank under close scrutiny, rose 21.7% and trimmed its annual loss to about 75.8%.
In energy markets, benchmark U.S. crude lost 18 cents to $72.65 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.97 to $72.83 on Wednesday. Brent crude, the price basis for international oil trading, fell 16 cents to $76.80 a barrel in London. In the previous session, the price rose $2.05 to $76.96.
The dollar fell to 137.46 yen from 137.61 yen on Wednesday. The euro rose to $1.0846 from $1.0838.
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