Asian stocks saw a notable rise on Tuesday, boosted by investor optimism following the possible resolution of a major US debt default. This positive development significantly improved market sentiment across a wide range of asset classes.
The Asia-Pacific region excluding Japan witnessed a strong performance, with the broader MSCI index posting a 0.4% rise early on Tuesday. This bullish momentum came after the Memorial Day holiday in the United States, in which US stocks closed trading. However, despite this recent rally, the index had seen a 1.3% drop throughout the month.
Australian shares saw a slight rebound of 0.03%, while Japan’s Nikkei stock index fell 0.28%. The Nikkei’s decline was attributed to a temporary cooldown after hitting a 33-year high, driven by positive sentiment around the U.S. debt deal and a weaker yen, which benefits Japanese exporters.
In Hong Kong, the Hang Seng Index rose 0.31%, while China’s CSI300 Index saw a marginal decline of 0.06%.
Within the Asian trading market, longer-dated US Treasuries rallied as bond traders warmly welcomed the agreement to suspend the borrowing limit in Washington.
Despite the overall positive sentiment, investors remain cautiously optimistic about the market’s future prospects. James Rosenberg, an adviser at brokerage Ord Minnett in Sydney, expressed concern about the US debt ceiling negotiations, noting that the agreement resulted in a significant increase in public debt without substantial spending cuts. He emphasized the disconnect between bond markets, which suggest a 70% chance of a U.S. recession over the next year, and the resilient stock market.
The debt deal effectively suspends the debt ceiling until January 2025, pending spending limits and cuts to government programs.
During the opening of trading in Tokyo, benchmark 10-year yields fell 6 basis points to 3.7596%, while thirty-year yields fell 5.5 basis points to 3.9207%.
Although US spot markets were closed on Monday, the S&P 500 e-minis indicated an increase of 0.32%, reflecting the positive response to the debt deal.
While the debt deal awaits congressional approval, JB Were analysts anticipate up to $600 billion in notes being issued in the next six to eight weeks. They also highlighted the potential impact of draining liquidity from the banking system through the issuance of bills, which could be comparable to a 25 basis point rate increase in terms of its effect on financial conditions.
The US dollar saw a slight rise of 0.02% against the yen on Tuesday, reaching 140.47, just below the year’s high of 140.91 reached on Monday.
Meanwhile, the euro showed an increase of 0.1%, to $1.0714, after experiencing a loss of 2.78% throughout the month. The dollar index, which measures the US currency against a basket of currencies of major trading partners, fell slightly to 104.23, holding near a more than two-month high. It also held a six-month high against the Chinese yuan.
US crude oil saw a modest 0.3% rise, reaching $72.89 per barrel, while Brent crude fell to $77.05 per barrel.
Gold experienced a slight decline, with the spot price at $1,942.39 per ounce.
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