New York open: Removing a global tail risk for now

Stephen Innes SPI Asset Management

Stocks in Asia traded higher Tuesday, and most markets (except China's CSI 300) are now up for the week as investors in Asia can digest an apparent US debt limit deal, removing a massive global tail risk for now.

If one thing still unites both Republicans and Democrats and even hardliners, it is a desire to avoid giving rivals like China a leg-up advantage.

European equities are little changed this morning and flat for the week -- illustrating how a US debt limit deal appears to have been largely anticipated by most risk assets.

Across asset classes, 10-year US Treasury yields are reacting more definitively to the debt limit news -- down 8bp to 3.73% -- with the move lower, reflecting, perhaps, the negative growth impulse that may accompany the spending cut that the debt limit resolution entails. Hence Fed sentiment is centring around the June pause rather than a rate hike camp today.

We don't necessarily agree with the move, as a debt deal should allow the market to continue pricing a firmer path for Fed policy and the Dollar for the weeks ahead. Let's see if New York supports this view.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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