Global stocks and oil prices experienced gains on Monday as investors cautiously welcomed news of an agreement that could prevent a catastrophic US debt default.
Germany’s DAX and France’s CAC 40 saw slight increases in early trading, while Japan’s Nikkei 225 closed at a 33-year high. Markets in the US and UK were closed for a holiday, but futures for the Dow, S&P 500, and Nasdaq showed positive signs. The optimism stemmed from reports of progress in negotiations between President Joe Biden and US House Speaker Kevin McCarthy to avert a default and allow the government to continue paying its bills.
The agreement reached in principle aims to raise the debt ceiling for two years and impose spending caps. The potential deal represents a step back from the brink of a historic default, which would have significant consequences for global financial markets and the economy. Oil prices also saw an uptick, with Brent crude futures rising 0.6% and WTI crude gaining 0.7%.
In other economic news, Turkey’s lira reached a record low against the US dollar following President Tayyip Erdogan’s victory in the presidential election. Erdogan has previously expressed his intention to continue cutting interest rates to combat inflation if re-elected.
While the US debt agreement provides a sense of optimism, the process is not yet complete. Both President Biden and Speaker McCarthy must now secure support for the deal in Congress, with Republicans controlling the House and Democrats controlling the Senate. The agreement must be passed before June 5, the crucial deadline set by Treasury Secretary Janet Yellen for the US to avoid default.
Global investors are closely monitoring these developments and also awaiting the release of China’s PMI indexes later in the week. China and Japan hold significant amounts of US debt, and a US default would have severe consequences for their economies as well.