Asian stocks follow Wall St higher on hopes for US debt deal

Asian stock markets followed Wall Street higher on Thursday on hopes US political leaders can reach agreement to avoid a potentially disastrous default on government debt
Asian Markets
Asian Markets

Asian stock markets followed Wall Street higher on Thursday on hopes US political leaders can reach agreement to avoid a potentially disastrous default on government debt.

Shanghai, Tokyo, Hong Kong and Sydney advanced. Oil prices edged lower.

Wall Street rallied Wednesday after President Joe Biden expressed confidence “America will not default” despite lack of agreement on Republican demands for cuts in aid to poor families to pay for food, medical care and rent in exchange for raising the amount the government can borrow.

“Markets are now fully pricing an in-time resolution of the crisis,” said Clifford Bennett of ACY Securities in a report. “No one wants to sell ahead of an announcement of a deal being made."

Speaker Kevin McCarthy of the House of Representatives said Tuesday the two sides were far apart but could reach a deal by the end of the week. The US government will run out of cash if they don't agree by June 1 to increase its borrowing limit.

Any disruption in US government borrowing and debt payments could send shockwaves through the global financial system. 

Treasury debt is regarded as the world's safest asset and influences the price of private sector borrowing.

The Shanghai Composite Index gained 0.6 per cent to 3,302.46 and the Nikkei 225 in Tokyo advanced 1.5 per cent to 30,533.64. The Hang Seng in Hong Kong rose 1.3 per cent to 19,807.06.

The Kospi in Seoul was 0.6 per cent higher at 2,509.30 and Sydney's S&P-ASX 200 added 0.6 per cent to 7,239.60.

New Zealand and Southeast Asian markets also rose.

On Wall Street, the benchmark S&P 500 index rose 1.2 per cent on Wednesday to 4,158.77. 

The Dow Jones Industrial Average rose 1.2 per cent to 33,420.77. The Nasdaq composite gained 1.3 per cent to 12,500.57.

Stocks of companies that get much of their revenue from the federal government, and thus may have much to lose if it can't pay its bills, rose Wednesday. Military contractor Lockheed Martin climbed 2.1 per cent. Northrop Grumman gained 2.7 per cent. 

Congressional negotiators and the White House are arguing over Republican demands for cuts, curbs on spending growth or work requirements for social programs. The Republican plan would block Biden's proposal to forgive some student debts and would repeal tax credits to promote use of clean energy and combat climate change.

Traders already expected at least a brief US recession this year following interest rate hikes to rein in stubbornly high inflation by cooling business activity.

Investors also worry about the health of global banks following three high-profile failures in the United States and one in Switzerland. 

Banks have been squeezed by the unexpectedly fast run-up in interest rates, which caused the market prices of bonds on their books to fall.

On Wednesday, Western Alliance Bancorp recovered some of its losses after it gave an update on its deposit levels. It jumped 10.2 per cent but still is down 41.6 per cent for the year.

PacWest Bancorp, another bank under heavy scrutiny, rose 21.7 per cent to trim its loss for the year to about 75.8 per cent.

In energy markets, benchmark US crude lost 18 cents to USD 72.65 per barrel in electronic trading on the New York Mercantile Exchange.

The contract rose USD 1.97 on Wednesday to USD 72.83. Brent crude, the price basis for international oil trading, declined 16 cents to USD 76.80 per barrel in London. It gained USD 2.05 the previous session to USD 76.96.

The dollar declined to 137.46 yen from Wednesday's 137.61 yen. The euro gained to USD 1.0846 from USD 1.0838.

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