Asian stocks rose when markets opened Monday amid news that U.S. lawmakers had reached a tentative deal to raise the debt limit and avoid a possible default.
After President Obama’s televised statement that congressional leaders had reached an agreement to cut spending by at least $1 trillion over the next decade, Japan’s Nikkei index rose 1.8 percent, South Korea’s Kospi index increased 1.8 percent and Australia’s S&P/ASX 200 was up 1.9 percent as of 10:55 a.m. in Tokyo.
Stocks are up because “fears of a partial U.S. government shutdown or default have been the main worry for investors recently,” Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney told Bloomberg News. “Nervousness is likely to remain high as the deal will still have to pass both houses of Congress.”
Toyota, the world’s largest carmaker, increased 1.6 percent in Tokyo. Samsung, the South Korean television maker, rose 2.1 percent in Seoul and National Australia Bank, the country’s third largest lender, gained 3.1 percent in Sydney.
Dow futures were also up 182 points and future contracts for the S&P 500 rose 1.6 percent – breaking a seven-day losing streak and indicating that U.S. stocks will likely follow suit when markets open in New York Monday.
If the debt deal is approved, “stocks will rally, and stocks will rally big,” John Brady, a senior vice president for futures and options at MF Global, told the AP. But if the deal falls apart and fails to pass Congress by Tuesday, “the rally will be torpedoed,” he says.
News of a tentative deal began to revive investor confidence. Many U.S. companies have reported strong quarterly earnings in recent weeks. Yet traders have been reluctant to cash in on that good fortune as the debt ceiling debate in Washington dragged on day after day, heightening concern that the U.S. may be headed for a financial crisis.
To avoid a steep market decline in the next few days, investors must believe the deal is more than just posturing in Washington, Thomas Tzitzouris, head of fixed income research at Strategas Research Partners, told the AP.
“When Congress says there is progress and then there isn’t, that really spooks the market,” he says. “That would be a double whammy.”