You are here

Markets rally on US debt deal optimism

By AFP - May 18,2023 - Last updated at May 18,2023

LONDON — Asian and European stock markets advanced Thursday, tracking a Wall Street rally in optimism over talks to avert a catastrophic US debt default.

The dollar rose further, having already made solid gains the previous day as investors sought shelter in the haven unit.

G-7 leaders arrived in Hiroshima, Japan, for a key summit — but the debt drama has already forced US President Joe Biden to cancel planned stops in Papua New Guinea and Australia, sparking hopes of a breakthrough.

Markets have been skittish in recent sessions with Republicans and Democrats unable to find common ground as the deadline for a deal to raise the country's borrowing limit approaches.

"The Washington mood-music and President Biden's decision to cut short his trip to the G-7 meeting have given markets hope that a debt limit solution will be forthcoming, improving the market mood, with equities higher and bond volatility fading away," noted Societe Generale analyst Kit Juckes.

Talks this week between Biden, House Speaker Kevin McCarthy and congressional leaders appear to have been fruitful.

"I'm confident that we'll get the agreement that we need on the budget and that America will not default," Biden said at the White House just before he set off for the G-7.

McCarthy added that Biden and Democratic Senate Majority Leader Chuck Schumer had "finally backed off the insane, irrational, unsensible idea that you just raise the debt ceiling."

"I'm optimistic about our ability to work together," he said. "The only question of whether we have a Biden default is the president himself."

Treasury Secretary Janet Yellen has warned that the US government would likely run out of cash by June 1 while the non-partisan Congressional Budget Office has forecast June 15.

Most economists have warned that world markets would be sent into turmoil and the already fragile global economy would take a severe hit if lawmakers do not lift the debt ceiling and the United States defaults.

And in a sign of the worry the issue is causing on Wall Street, a number of top bank executives visited Washington to hold talks with congressional leaders.

Afterwards, JPMorgan Chase CEO Jamie Dimon told reporters: "The US should not and probably will not default."

32 users have voted.


Get top stories and blog posts emailed to you each day.