Asian stocks follow Wall St higher on hopes for US debt deal

Asian stock markets have followed Wall Street higher on hopes U.S. political leaders can reach agreement to avoid a potentially disastrous default on government debt

Joe McDonald
Thursday 18 May 2023 06:38 BST

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Asian stock markets followed Wall Street higher on Thursday on hopes U.S. political leaders can reach agreement to avoid a potentially disastrous default on government debt.

Shanghai, Tokyo, Hong Kong and Sydney advanced. Oil prices edged lower.

Wall Street rallied 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 to pay for food, medical care and rent 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."

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 U.S. government will run out of cash if they don't agree by June 1 to increase its borrowing limit.

Any disruption in U.S. 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.

The Shanghai Composite Index gained 0.8% to 3,311.09 and the Nikkei 225 in Tokyo advanced 1.6% to 30,562.40. The Hang Seng in Hong Kong rose 1% to 19,746.90.

The Kospi in Seoul was 0.7% higher at 2,513.72 and Sydney's S&P-ASX 200 added 0.5% to 7,236.30.

India's Sensex opened up 0.3% at 61,738.58. New Zealand and Southeast Asian markets also rose.

On Wall Street, the benchmark S&P 500 index rose 1.2% on Wednesday to 4,158.77.

The Dow Jones Industrial Average rose 1.2% to 33,420.77. The Nasdaq composite gained 1.3% to 12,500.57.

Stocks of companies that get much of their revenue from the federal government, and thus may have much to lose if it can’t pay its bills, rose Wednesday. Military contractor Lockheed Martin climbed 2.1%. Northrop Grumman gained 2.7%.

Congressional negotiators and the White House are arguing over Republican demands for cuts, curbs on spending growth or work requirements for social programs. The Republican plan 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 U.S. 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% but still is down 41.6% for the year.

PacWest Bancorp, another bank under heavy scrutiny, rose 21.7% to trim its loss for the year to about 75.8%.

In energy markets, benchmark U.S. crude lost 24 cents to $72.59 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 24 cents to $76.72 per barrel in London. It gained $2.05 the previous session to $76.96.

The dollar declined to 137.56 yen from Wednesday's 137.61 yen. The euro retreated to $1.0830 from $1.0838.

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