Asian Markets Hail 11th-Hour Deal To Avert U.S. Default

Share markets from Australia to Japan drove their indexes to levels not seen in weeks after legislators produced a last-minute deal to lift the U.S. government’s borrowing limit and dodge a potentially catastrophic debt default.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS hit a fresh five-month high and was last up 0.6 percent. Tokyo’s Nikkei .N225 advanced 0.8 percent, having earlier scaled a three-week peak.

President Barack Obama signed the bill into law on Thursday, averting a deadline by which the Treasury Department said its borrowing authority would have been exhausted.

U.S. stock index futures dipped in what appeared to be a buy-on-the-rumor/sell-on-the-fact move, having already rallied 1.3 percent overnight.

In an unexpected turn, European stocks were thought likely to open slightly lower with investors tempted to lock in profits from a late rally on Wednesday, when signs of an imminent deal emerged.

Financial spreadbetters predict Britain’s FTSE 100 .FTSE Germany’s DAX .GDAXI and France’s CAC 40 .FCHI would all open around 0.2 percent lower.

“It sounds counter-intuitive to have such a deflated reaction but those who took a speculative punt on a deal being done will be looking to cash in their chips this morning,” Jonathan Sudaria, a trader at Capital Spreads in London, wrote in a client note.

The dollar index .DXY, which tracks the greenback’s performance against a currency basket, slipped a touch to 80.362, pulling back from a one-month high of 80.745.

U.S. Treasuries took the announcement in their stride as well with U.S. Treasury futures gaining 0.1 percent, while the 10-year benchmark yield slipped to 2.65 percent from around 2.68 percent late in New York.

KICKING THE CAN

The deal, however, does not resolve the fundamental issues of spending and deficits that divide Republicans and Democrats. It funds the government until January 15 and raises the debt limit through to February 7, so global markets face the possibility of another showdown in Washington early next year.

“The can has been kicked further down the road…the reset button has been pushed and we will go thought this all again in two months time,” said Evan Lucas, market strategist at IG in Melbourne.

But Lucas expected “normal trading” to return over the coming days as the earnings season gets underway.

Still, the resolution couldn’t have come at a better time for companies such as South Korean train maker Hyundai Rotem, which recently launched an initial public offering in what could be the country’s biggest share sale so far this year.

In the currency market, the improved risk appetite saw investors favor high-yielding currencies including the Australian dollar.

The Aussie dollar hit a 4-month high of $0.9574 and scaled a 4-1/2 month peak of 94.48 yen. It has since stepped back a notch to $0.9541 and 93.89 yen.

Against the yen, the U.S. dollar briefly reached a three-week high of 99.01, before strong selling interest knocked it back to 98.44. The euro edged up 0.1 percent to $1.3549.

Among commodities, copper slipped 0.5 percent to $7,224 a tonne (1 tonne = 1.102 metric tons), while gold traded at $1,279 an ounce — struggling to gain momentum in the absence of safety bids. U.S. crude dithered at $102 a barrel.

WHAT’S NEXT?

Many traders are already trying to get past the fiscal drama and looking to see when a backlog of U.S. economic data, including the September payrolls, will be released when the partial government shutdown is lifted.

With the maneuvering in Washington just about over, investors will re-focus on economic news and the timeline for the U.S. Federal Reserve’s tapering of its bond-buying program — a major driver of global assets in recent months.

The Fed stunned markets last month by opting to delay the start of stimulus reduction.

“It will be some time before we are able to get a clear read on the U.S. labor market post-shutdown,” said Westpac economist Elliot Clarke.

“But a logical expectation given recent events and the lack of a long-term solution is that we will see soft employment growth through the remainder of 2013 and into 2014.”

That, Clarke said, is likely to see the Fed maintain a dovish tilt, adding the U.S. central bank will very likely have to downgrade its 2013 and 2014 growth forecasts given the impact of the U.S. government shutdown — delaying the start of a tapering of stimulus by the Fed.

The Fed has two more policy meetings scheduled for 2013, the first on October 29-30 and the second on December 17-18.

Source : Reuters