Markets buoyed by hopes of a coming US debt deal
AP and AFPLONDON/HONG KONG--Hopes that lawmakers in Washington are inching toward a deal shored up markets Tuesday, even though time is running out.
October 16, 2013, 12:11 am TWN
With the deadline to increase the debt ceiling just two days away, investors have been remarkably sanguine. A failure to raise the debt ceiling by Oct. 17 could cause the U.S. to default on some of its debts — a development that analysts say could derail the U.S. economic recovery and cause mayhem in financial markets around the world.
The prevailing view in markets appears to be that a deal will be agreed between Republicans in Congress and the White House because no politician will want to be seen as being responsible for a default.
“The history of U.S. fiscal stalemates is that typically a last-minute deal is reached,” said Neil MacKinnon, global macro strategist at VTB Capital.
The comments out of the U.S. capital appear to reinforce the markets' views — Congressional aides have predicted that Senate Majority Leader Harry Reid and Republican leader Mitch McConnell could seal an agreement Tuesday that would see the debt ceiling raised until sometime in February. It would also reportedly see the U.S. government, which has been in partial shutdown for two weeks, reopening through Jan. 15.
After weeks of bickering between the two sides, Senate Majority leader Harry Reid and his Republican opposite number Mitch McConnell conducted low-key talks they said had finally bore fruit.
“I'm very optimistic we will reach an agreement that's reasonable in nature this week to reopen the government, pay the nation's bills and begin long-term negotiations to put our country on sound fiscal footing,” Reid said.
While expectations have been for a deal to be made — equities have remained buoyant despite the gridlock — the news will come as a relief because a U.S. default would send global markets tumbling and likely spark another worldwide recession.
“It's not like the U.S. can't afford to pay its bills, it's more like its wife has just hidden its checkbook,” said CLSA equity strategist Nicholas Smith.