March 1, 2021

Asian Markets Rally After U.S. Debt Deal

HONG KONG — Asian financial markets heaved a sigh of relief Monday over the last-minute agreement in Washington to raise the U.S. debt limit, shrugging off for now the lingering concerns about longer-term global growth prospects.

Stock markets rallied across the region on news that top U.S. policy makers had reached the framework for a budget deal that will clear the way for an increase in the U.S. government’s borrowing limit and could help avert a default. The agreement has yet to be approved by the Senate and the House of Representatives.

The key indexes in Japan and South Korea jumped 1.3 percent in early trading and picked up steam as the deal was announced by President Barack Obama.

The Nikkei 225, which rose as much as 2 percent, finished 1.3 percent higher at 9,967.01 points, with investors also encouraged by the Japanese currency’s fall against the U.S. dollar after the debt deal.

The U.S. debt woes had undermined the dollar’s value in international currency markets in recent weeks, especially against the yen — a worrying trend for Japanese exporters, as a strong yen makes their goods more expensive for shoppers overseas.

By midafternoon in Tokyo on Monday, the dollar bought 77.7 yen, about 1 yen more than it did late Friday in New York.

Expressing a general sense of guarded optimism about the debt deal, Yukio Edano, Japan’s chief cabinet secretary, said Monday, “We welcome the deal, which we hope will lead to market stability.”

Similarly, Wayne Swan, the Australian treasurer, said the debt agreement was an important first step but that U.S. fiscal consolidation was necessary to ensure global growth.

However, some analysts believe that the deal as outlined by President Obama may not be enough to stave off a downgrade from one or more of the major ratings agencies.

The debt-ceiling debate, said David Carbon, an economist at DBS in Singapore, “has made people realize just how much there is left to do on the fiscal front.”

U.S. economic growth has been slow over several quarters, Mr. Carbon said, and the risk of a double-dip recession is now much greater than it appeared a year ago.

Still, investors on Monday were heartened by the debt ceiling framework. U.S. stocks appeared set to recoup some of the past week’s losses, with S.P. 500 stock futures 1.6 percent higher.

Gold, which has struck multiple record highs amid the uncertainty of the past weeks, fell nearly 1 percent to $1,613 per ounce. Oil rose about $1 to $97 a barrel.

Also helping market sentiment in the Asia-Pacific region was fresh evidence that the Chinese economy may not be slowing as rapidly as feared.

A manufacturing index released by the China Federation of Logistics and Purchasing on Monday showed a reading of 50.7 for July. That was slightly lower than the 50.9 reading in June but better than analysts had expected.

(An index over 50 indicates an expansion.)

Similarly, a separate index compiled by HSBC came in at 49.3 on Monday, better than the preliminary reading of 48.9 that the bank had published last month.

“China’s growth is slowing, but not as much as feared,” said Dariusz Kowalczyk, a strategist at Crédit Agricole in Hong Kong. “As for the global picture, the fear of a default has been put off, that’s clearly a relief.”

Many economists in the region see the slowdown in China as a welcome development, as the red-hot pace of growth has moderated to more sustainable levels. Beijing has been engineering the slowdown by gradually reining in bank lending and raising rates since last year.

While there is some nervousness that the Chinese authorities may tighten monetary policy too much, Mr. Carbon stressed that China, unlike the United States, had the ability to react quickly if the slowdown accelerated more than intended.

“If there is one economy in the world that can fix any mistakes quickly by dialing back again if needed, it is China,” he said.

Stocks in mainland China took the manufacturing data in stride. The Shanghai composite index was up 0.1 percent by midafternoon.

Elsewhere in the region, the Kospi in South Korea closed 1.8 percent higher, and the benchmark index in Australia rose 1.7 percent.

In Singapore, the Straits Times index gained 1.1 percent and in Hong Kong, the Hang Seng rallied 1.5 percent. In India, the benchmark Sensex climbed 0.8 percent.

Hiroko Tabuchi contributed reporting from Tokyo.

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