LONDON, UK – Stock markets wobbled on Tuesday as a deal to hike the US debt ceiling and avoid a painful default goes to a vote in Congress this week.
President Joe Biden and House Speaker Kevin McCarthy hammered out an agreement at the weekend that saw both sides give ground, a week before a June 5 deadline when the government is expected to run out of cash to pay its bills.
While the deal provided some relief to markets, the two leaders must convince waverers on both sides to back the deal, with the House expected to vote Wednesday followed by the Senate.
“A deal may have been struck on the debt ceiling, but it’s not fully calmed nervousness on financial markets,” said Susannah Streeter, head of money and markets at stockbroker Hargreaves Lansdown.
Dissenting voices?
“Clamor from dissenting voices on both sides of the political divide are rising, ahead of a crucial Congressional vote. Nevertheless, the US does appear to be inching towards agreement,” added Streeter.
Ultra-conservative Republicans feel McCarthy should have secured far deeper spending cuts in exchange for raising the debt ceiling and allowing the government to keep borrowing.
The left wing of the Democratic Party is equally unhappy that Biden agreed to any spending limits at all.
Still, the US president and House speaker were optimistic.
“I never say I’m confident what the Congress is going to do. But I feel very good about it,” Biden said Monday, adding that he had spoken to lawmakers.
Asian and European markets were mixed on Tuesday. Wall Street, which was closed for Memorial Day on Monday, will give its first reaction to the deal when it opens Tuesday.
Hong Kong and Shanghai edged up after recent losses fueled by worries about the Chinese economy as the post-lockdown recovery fades, while there were also gains in Tokyo, Singapore, Seoul and Mumbai.
But Sydney, Wellington, Taipei, Manila, Bangkok and Jakarta retreated.
London declined as dealers returned from a long weekend, while there were also losses in Paris but Frankfurt rose.
“Voting on the US debt ceiling is expected to begin from Wednesday and there appears to be sufficient support to clear passage,” said National Australia Bank’s Tapas Strickland.
However, analysts pointed out that while the debt ceiling resolution will remove one worry for markets, there is now concern about liquidity that could weigh on sentiment.
They said the Treasury will need to sell more than $1 trillion of Treasury bills to replenish its coffers, meaning a flood of sales that will soak up cash from the banking sector and put fresh pressure on the economy.