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Global markets slightly positive given progress on debt ceiling agreement

Olusegun Enujowo

Analyst

Fed rate hike in prospect US Markets are closed today (May 29) for Memorial Day Holiday which will keep trading volume globally limited. Also UK markets are closed (bank holiday), as well as markets in the Nordic countries and Switzerland (Pentecost).

 President Joe Biden confirmed the late Saturday that a debt ceiling agreement was reached. This prevents a potential US default, and he describes it as a compromise where "Nobody got everything that they want."

The bill is slated for a House floor vote on Wednesday, May 31, and if it passes, the Senate will vote next. Upon passing both, President Biden needs to sign it to make it law. If the debt ceiling isn't raised or suspended by then, Treasury Secretary Janet Yellen estimated the department would run out of cash on Monday, June 5.    

President Joe Biden and House Speaker Kevin McCarthy are confident about their tentative agreement passing Congress, though traders have much to consider even if a deal is reached before the government runs out of cash in about a week.

These considerations include another potential interest rate hike from the Fed and a probable surge of bond issuance from the US Treasury Department.

While there is positivity around the resolution of the debt ceiling problem, investors are worried that the overall financial situation is still unstable. There's still uncertainty about how long and how severe the ongoing decrease in corporate earnings will be. Also, the government's need to manage its backlog of debt could result in less available cash in the short term.

US equity futures saw a slight increase, adding to Wall Street's strong gains from Friday, while European stocks displayed modest gains. This comes amid cautious optimism about nearing a debt-ceiling deal to prevent a disastrous US default.

 USD weakened against major currencies, after it previously benefitted from the uncertainty around the debt limit. TRY weakened sharply after Recep Tayyip Erdogan won the presidential runoff election

Gold remained stable due to reduced demand for safe havens, while oil and Bitcoin experienced an increase, reflecting a mildly positive tone.

US Treasuries steadied, with the two-year Treasury yield hovering around 4.56%, and traders are considering how a debt agreement might impact the Fed’s decisions on interest rates. 

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