Asian markets, US futures surge on debt ceiling accord. Asian shares and U.S. stock futures gained on Monday after U.S. President Joe Biden and House Speaker Kevin McCarthy reached a weekend compromise to postpone the debt ceiling, resolving a protracted standoff and easing investor concerns.

After weeks of negotiations, House Republicans McCarthy and Biden agreed late Saturday to suspend the $31.4 trillion debt ceiling until 2025 to avoid an economically destabilizing default. After that, the finely divided Congress must approve the accord.
The encouraging news lifted S&P 500 futures by 0.2% in Asia and Nasdaq futures by 0.4%.

After falling 1.1% the week before, MSCI’s broadest Asia-Pacific share index outside Japan (.MIAPJ0000PUS) rose 0.3%. Tokyo’s Nikkei rose 1.3% to a 33-year high.

China’s blue chips (.CSI300) fell 0.1%, and Hong Kong’s Hang Seng index (.HSI) fell 0.3%, knocked down by weekend industrial profit data that confirmed the world’s second-largest economy’s slowdown.
A first slice of comfort may cut yields and boost the U.S. dollar and markets. “But the vagaries of pushing the deal through Congress may hold back (the optimism),” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

“And beyond that, the overarching consequences on liquidity compression from issuances to supplement Treasury cash that is running very low may perversely elevate rates and weaken equities. The dollar may be bid.”

Due to the Memorial Day vacation, cash U.S. Treasuries were untraded in Asia on Monday. Futures were stable. On Friday, two-year yields reached 4.6390%, a two-and-a-half-month high.

Last week, U.S. stocks rose on debt ceiling hopes and AI confidence. On Friday, the Dow Jones Industrial Average (.DJI) halted a five-day losing run, while the Nasdaq Composite Index (.IXIC) and S&P 500 (.SPX) reached their highest levels since August 2022.

We always assumed a resolution, and now we have that, so markets are less apprehensive. After the votes pass and we return from Memorial Day, the question is, “What next?” IG market analyst Tony Sycamore.

“Yes, we will get the short-term relief rally, but then we have to start thinking about the June FOMC meeting, inflation being stickier than expected, and money being drained out of the markets.”

Friday’s consumption expenditures (PCE) price index exceeded expectations. With solid U.S. consumer spending, markets expect a quarter-point Fed raise next month and a year of stable rates.

Job vacancies and non-farm payrolls will be released this week, which may impact the Fed’s June decision. Reuters economists predict May payrolls to rise 195,000, down from 253,000 in April.

After President Tayyip Erdogan won Turkey’s presidential election, the lira languished around 20.04 versus the dollar, just above its record low of 20.06 on Friday.

Risk-sensitive currencies rebounded, lowering the dollar index to 104.17. It’s still near Friday’s two-month high.

In early trade, the yen fell to 140.89 per dollar, the euro hovered at $1.0727, and the Aussie rose 0.3% to $0.6535, trying to recover from Friday’s six-month low.

Oil rose early Monday. Brent crude futures rose 0.7% to $77.51, while WTI crude rose 1% to $73.4.

Gold fell 0.2% to $1,943.19 per ounce.