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President Biden Strikes Deal to Raise US Debt Ceiling, Japanese Market Gains Most

Over the last weekend, US President Joe Biden and congressional leaders struck a deal to raise the US debt ceiling. This will allow the government to borrow more and spend on infrastructure and other social welfare schemes. The voting for the bill shall likely happen later this week.

The news led to some optimism in the early trading hours of the Asia market on Monday. Japan’s Nikkei closed 1.03% higher at 31,233.54 with the index closing as high as 2.04% during the trading hours. Similarly, Topix also gained 0.69% shaping up a four-day losing streak and closing at 2,160.65. The Hang Seng index in Hong Kong extended its downward trend, dropping 0.92% by the end of trading.

Meanwhile, the Shanghai Composite in mainland China experienced a slight increase of 0.2%, marking its second consecutive day of gains. However, the Shenzhen Component declined by 0.8% and closed at its lowest level since November 1, 2022.

However, economic developments in the Asia market shall be crucial to watch ahead. Key things in focus ahead this week are China’s purchasing managers’ index readings for May, South Korea’s inflation and GDP reports, and the Bank of Thailand’s meeting.

China’s National Bureau of Statistics will release the purchasing managers index (PMI) for May, with economists predicting a reading of 49.4, indicating a contraction, similar to April’s reading of 49.2. On the same day, the Bank of Thailand will announce its interest rate decision. Economists surveyed by Reuters anticipate a 7.9% decline in South Korea’s industrial production for April, to be reported on Wednesday.

Despite China’s uneven economic recovery, Deutsche Bank “remains optimistic” about China for the medium to long term. Holtze-Jen on CNBC’s “Squawk Box Asia”  said that there “are parts of the economy that will be very much supported, especially on the consumer side. And we’ve got lots of rhetoric from the government regarding to that”.

Later this week, the US shall be releasing its jobs report after which the dollar index could strengthen to 105 in the short term. In a note on Monday, Ryota Abe, Asia Pacific economist at Sumitomo Mitsui Banking Corporation (SMBC) wrote:

“Asian currencies are expected to weaken, but the decline may be limited as more market participants are also looking for chances for Asian currencies to appreciate in preparation for risk-on sentiment after the Fed pauses rate hikes.”

In the early trading session on Monday morning, the dollar index slid marginally to 104.164. On the other hand, the Japanese Yen has strengthened against the USD slightly to 140.52. “US economic data released last week support hawkish stances on rate hikes,” Abe wrote in the note. “Combined with CPI released earlier this month, the data show stronger than expected inflationary pressures, reigniting concerns over inflation in the US,” said he.

President Biden Strikes Deal to Raise US Debt Ceiling, Japanese Market Gains Most

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