Debt limit compromise: Global markets cheer, but...
Debt limit deal causes jump for stocks in Asia and stock futures in US. But big cuts from second step of debt limit plan would be needed for a durable rally.
SINGAPORE – Stocks rose while gold and the yen dropped on Monday as investors cut safety trades after Washington reached a last-minute deal to escape default, though the top U.S. credit rating could still be downgraded.Skip to next paragraph
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After a tense weekend in which rival plans to lift the U.S. borrowing limit were shot down in Congress, U.S. President Barack Obama said leaders from both parties reached a deal to cut the budget deficit by $1 trillion over 10 years, with additional savings of $1.4 trillion possible.
U.S. S&P 500 stock futures bounced 1.5 percent in a relief rally, high-yielding currencies such as the Australian dollar and emerging Asian units strengthened, while U.S. Treasuries -- which have maintained their haven status despite being at the centre of the debt ceiling impasse -- slid .
Investors were still on guard, though, since the plan, which will likely come to a vote in Congress on Monday, may not necessarily satisfy Standard & Poor's enough to keep the U.S. triple-A debt rating.
"They will look to a more coherent fiscal reform to emerge from the second step and, more generally, for additional measures to remove structural impediments to growth and jobs. Markets will also be asking whether this two-step agreement is sufficient to remove the threat of an S&P downgrade."
RELIEF OVER THE U.S. DEAL...
Japan's Nikkei share average outperformed U.S. stock futures, gaining 1.8 percent , as investors bought back technology-related shares and the weaker yen invited buyers to dive back into major exporters.
"Obama's remarks may be enough for the Nikkei to regain the last three days of losses, but today's gains will likely reflect temporary relief, not solid confidence that all the negative elements in the U.S. economy have been priced in," said Tsuyoshi Kawata, a senior strategist at SMBC Nikko Securities in Tokyo.
The MSCI index of Asia Pacific stocks outside Japan was up 1.7 percent after falling for the past two sessions, with gains spread out fairly evenly among the sectors with the defensive utilities segment underperforming.
The U.S. dollar index , which measures its value against a basket of six other major currencies, was largely unchanged on the day.
"Avoiding default by the U.S. government is of paramount importance, but investors also need to see a clear path toward deficit reduction that encourages confidence in the U.S. dollar. This is essential if we are to maintain America's AAA rating and encourage long-term investment in the U.S," said U.S. fund manager BlackRock Inc, which oversees $3.6 trillion in assets, in a statement.