SINGAPORE — Stocks rose while gold and the yen dropped yesterday as investors cut safety trades after Washington reached a last-minute deal to escape default, though the top US credit rating could still be downgraded.
After a tense weekend in which rival plans to lift the US borrowing limit were shot down in Congress, US President Barack Obama said leaders from both parties reached a deal to cut the budget deficit by $1 trillion over 10 years, with additional savings of $1,4-trillion possible.
US S&P 500 stock futures bounced 1,5 % in a relief rally that is expected to spill over into European markets.
High-yielding currencies such as the Australian dollar and emerging Asian units strengthened, while US Treasuries — which have maintained their haven status despite being at the centre of the debt ceiling impasse — slid.
Investors were still on guard, though, since the plan, which will likely come to a vote in Congress yesterday, may not satisfy Standard & Poor’s enough to keep the US triple-A debt rating and also begs the question of how the US government will meet its obligations over the long term.
“For the rally to be durable, markets will need more than this downpayment agreement,” said Mohamed El-Erian, co-chief investment officer of PIMCO in Newport Beach, California.
“They will look to a more coherent fiscal reform to emerge from the second step and, more generally, for additional measures to remove structural impediments to growth and jobs.”
Japan’s Nikkei share average rose 1.3%, inching back toward a four-month high hit in early July, as investors bought back technology-related shares and the weaker yen invited buyers to dive back into major exporters.
“Obama’s remarks may be enough for the Nikkei to regain the last three days of losses, but today’s gains will likely reflect temporary relief, not solid confidence that all the negative elements in the US economy have been priced in,” said Tsuyoshi Kawata, a strategist.
The MSCI index of Asia Pacific stocks outside Japan was up 1,7% after falling for the past two sessions, with gains spread out fairly evenly among the sectors with the defensive utilities segment underperforming.
Hong Kong’s Hang Seng was up 1,4%, led by a 1,5% rise in HSBC after Europe’s largest bank said it would sell nearly half of its underperforming US branch network.