Stock markets wobble as traders await US debt ceiling vote

LONDON (AFP): Stock markets wavered on Tuesday as a deal to hike the US debt ceiling and avoid a painful default heads to a vote in Congress this week. On its return from the three-day Memorial Day weekend, the Dow fell after opening in the green.

But the S&P 500 rose and the tech-rich Nasdaq jumped more than one percent, with chip company Nvidia, a key supplier to the artificial intelligence boom, seeing its market value top $1 trillion as its shares surged four percent.

Oil prices fell more than three percent as traders await the Congress vote and digest conflicting messages from OPEC+ members about new output cuts, analysts said.
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.

“Presently, it feels like investors are confident that the US debt ceiling will be raised,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The kneejerk reaction to a debt ceiling deal will be positive but gains could remain short-lived as most of the deal is already priced in,” she said.

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.

“A deal may have been struck on the debt ceiling, but it’s not fully calmed nervousness on financial markets,” noted Susannah Streeter, head of money and markets at stockbroker Hargreaves Lansdown.

“Clamour 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.

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.

In Asian markets, Tokyo extended gains while Hong Kong and Shanghai edged up after recent losses fuelled by worries about the Chinese economy as the post-lockdown recovery fades.

But Sydney, Wellington, Taipei, Manila, Bangkok and Jakarta retreated.
London declined as dealers returned from a three-day weekend, while there were also losses in Paris. Frankfurt bucked the trend as it rose.

Analysts said 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.

“We don’t know at what speed at which the market liquidity will drain, but we know that it will drain,” Ozkardeskaya said.

Investors are also keeping an eye on the US Federal Reserve’s next interest rate decision in June after data on Friday showed a key gauge of inflation rising in April.