Asian stocks rise on US debt ceiling deal

Asian equities rose and US stock futures edged higher on Monday after US president Joe Biden struck a deal with Republican House Speaker Kevin McCarthy that would raise the US debt ceiling and prevent an unprecedented default in early June.

Japan’s benchmark Topix stock index and Australia’s S&P/ASX 200 both rose about 1 per cent in morning trading in Asia, while Taiwan’s Taiex index gained 0.7 per cent. Hong Kong’s Hang Seng and China’s CSI 300 fell 0.5 per cent and 0.7 per cent, respectively.

The S&P/NZX 50 index of New Zealand’s largest listed companies gained 0.9 per cent. The Australian and New Zealand currencies were stronger against the US dollar.

Markets in the US were closed for a holiday on Monday, but stock futures in Asia tipped the S&P 500 to rise 0.3 per cent and the tech-focused Nasdaq to gain 0.4 per cent. The former rose more than 1 per cent on Friday to its highest level in nine months on growing hopes for a debt ceiling deal.

US Treasuries were unmoved in Asia on Monday, but the yield on the 10-year government bond had closed 0.02 percentage points lower at 3.798 per cent on Friday. Bond yields move inversely to prices.

The deal reached on Saturday followed days of tense negotiations between the White House and Capitol Hill to avert a looming default before the US is expected to run out of cash to pay off its obligations on June 5.

Both sides have moved to quell discontent over the compromise in their respective parties ahead of an expected vote on Wednesday in the House of Representatives, controlled by Republicans, which would be followed by a vote in the Democrat-controlled Senate.

Fitch, the rating agency, put the US’s triple A credit rating on negative watch last week as a result of the impasse over the debt ceiling.

“A House vote on the deal is likely midweek, the fate of the bill remains uncertain given some Republicans were angling for bigger cuts and some Democrats wanted no cuts,” said Tom Kenny, senior economist at ANZ.

But he added that recent readings on the US economy had been strong enough that the US Federal Reserve might decide to continue raising interest rates “should fiscal and financial uncertainties blow over shortly and without causing economic pain”.

In currency markets, trading was light in Asia ahead of Monday holidays in the US and UK. Turkey’s lira held at 20.04 a dollar, just shy of a record low, after President Recep Tayyip Erdoğan extended his rule into a third decade in a second round of voting over the weekend.