Asian stocks dip as investors question consequences of US debt deal

Asian shares gave back early gains on Tuesday with relief Possible default was averted by the US government It gave way to concern that the deal to suspend its debt ceiling was a compromise that would have negative consequences.

The package must still be approved by the Republican-controlled House and the Democratic-controlled Senate before the debt limit is reached, likely by next Monday.

“The US had a poor solution to the debt ceiling negotiations with still a massive increase in government debt and no real spending cuts, but (they) have taken the pressure off for now,” said James Rosenberg, advisor at Sydney-based broker Ord Minnette. .

“There remains a significant disconnect between the bond and equity markets. The bond market indicates a high probability of 70 percent of a recession in the United States in the coming year. These signals stand in stark contrast to the resilient stock market.”

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.02 percent on Tuesday, after US stocks closed Monday for the Memorial Day holiday. The index is down 1.3 percent so far this month.

Australian stocks fell 0.11 percent, while the Nikkei index rose 0.36 percent, after the Japanese index hit a 33-year high amid optimism about the US debt deal and the weakness of the yen, which helps exporters in the country.

Hong Kong’s Hang Seng rose 0.31 percent at the open, but fell 0.82 percent later in the session, extending its recent decline to a new low this year. China’s CSI300 index fell 1.16 percent.

The Hang Seng Index lost 7.2 percent during the month of May, while the CSI300 Index fell 5.5 percent as a result of the Chinese economy not recovering from the epidemic lockdown ending in January as quickly as expected.

“Everyone is looking at the disappointment in the performance of Chinese stocks recently and this is now creating negative investor sentiment,” said Jack Siu, chief investment officer of Credit Suisse in China.

“Investors are now more silent about the reopening of China’s story and contemplating their positions.”

In Asian trade, long-term US Treasury bonds rose on Tuesday as bond traders welcomed an agreement to suspend Washington’s borrowing limit until January 2025 in return for spending caps and cuts in government programmes.

Despite the positive initial response, investors say the markets are not out of the woods yet. Narrow margins in the House and Senate mean moderates on both sides will have to support the bill for it to pass.

Benchmark 10-year yields fell 6 basis points during Asian trading, to 3.7616 percent, while 30-year bond yields fell 6.3 basis points, to 3.9134 percent.

With the debt deal heading to Congress for approval, analysts from JB Were said up to $600 billion worth of bonds could be issued in the next six to eight weeks.

The size of the treasury issue and the economic implications are now being considered, according to David Zhao, global strategist for Asia Pacific at Invesco.

“The recent regional banking crisis in the United States, along with Treasury issuances, is likely to lead to a tightening of liquidity conditions,” Zhao said.

“Announcing a debt deal in the near term is a boost to market sentiment, but it puts pressure on growth due to government spending cuts, tighter liquidity conditions, but the flip side is that the pressure on growth does the job for the Fed as it tries to cool the economy. It could It has a dampening effect on inflation.”

Across the region, Euro Stoxx 50 futures were up 0.14%, German DAX futures were up 0.09%, while FTSE futures were down 0.08%, at 7,631.

US stock futures, S&P 500 e-minis, rose 0.23 percent to 4,223.

The dollar fell 0.03 percent on Tuesday against the yen to 140.4, just below the year’s high of 140.91 hit on Monday.

The euro rose 0.1 percent flat at $1.0702, after losing 2.89 percent in one month, while the dollar index, which measures the US currency against a basket of currencies of other major trading partners, fell to 104.41, against more than two. – Height of the month. It was also trading near a six-month peak against the Chinese yuan.

US crude fell 0.7 percent, after it reached $72.17 a barrel, after rising by 0.3 percent in previous trading. Brent crude fell to $76.42 a barrel.

Gold declined slightly with spot price at $1935.72 an ounce.