Asian markets were cheering the debt ceiling news today, with the major bourses posting solid gains due to the reduced likelihood of a US default scenario.
News that US President Biden and Speaker McCarthy had reached an agreement in principle buoyed markets. However, how long the enthusiasm lasts will be dependent upon how smoothly or otherwise the next step of the process is.
Getting the House and the Senate to approve a deal is easier said than done, so traders will be watching events in Washington this week to see how much arm-twisting and revising needs to be done to get the deal signed off.
So, there could still be some more twists and turns this week. But, with the progress made on a tentative deal and the rather convenient changing of the deadline (to June 5th), risk-assets are continuing to price-out the potentiality of a US default.
Oil ticks higher
The oil price has ticked higher on the debt-ceiling news. A settling of nerves in financial markets and a rally in equities could give the oil price more room to move on the upside. WTI oil was last seen trading at US$73.43 per barrel. Investors will have an ear out this week for any further rhetoric from OPEC+ members, particularly given the contrasting tones from Saudi Arabia and Russia last week.
Gold struggles to catch a bid
Gold is struggling to catch a bid at the moment. Progress from Washington on the debt-ceiling is keeping flights to safety subdued, while the higher Core PCE Index data reminded markets that USD rates could be higher for longer. The absence of positive drivers for the precious metal is keeping the gold price in a bit of a rut below the US$1950 level. The persistence of the USD is making a bounce hard to come by for the gold price.
In currency markets, the US dollar remains in demand after the latest inflation gauge appeared to support the recent hawkish slant from the Fed. Core PCE Index came in at 0.4% (above the 0.3% expected). With inflation indicators continuing to come in on the high-side, markets are coming to realise that hopes for interest rate cuts by year end are looking more remote.
And with a possible June rate hike by the Fed still in play, it is the greenback and US treasury yields which continue to prosper.
A US holiday for Memorial Day will sap some liquidity from markets to start the week. Looking ahead, traders will be tuned in for any developments from Washington as the deal on the debt-ceiling goes to a vote, while US payrolls data will cap off the week.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
