Markets digest debt deal implications

The US and UK were closed yesterday, making for a quiet start to the week. Those markets that were open were digesting the implications of the tentative debt ceiling deal reached in the US over the weekend, and the potential implications for the global economy going forward. A hearing on the deal will be held by the House Rules Committee today, before it is voted on by Congress tomorrow, with both sides playing up their respective gains from the deal to their base in an effort to ensure its passing.

Japan’s headline unemployment rate fell to 2.6% in June, down from 2.8% previously and beating expectations of 2.7%. This was the first decline for the reading in three months and raises hope for both economic growth going forward but also that a tighter labour market could provide a sustainable inflationary boost in the country that has struggled with below-target price growth for decades.

The Dubai Roads and Transport Authority has announced that there were 27.3mn taxi journeys made in the emirate over the first quarter of the year. This is up from 26mn last year and exceeds the 26.1mn made in pre-pandemic 2019, reflecting the ongoing growth in the city. Also in Dubai, the Dubai Financial Market has launched futures contracts on its general index as the bourse looks to boost the ‘depth and breadth of the market.’

Today’s Economic Data and Events

• 18:00 US conference board consumer confidence index, May. Forecast: 99.9

Fixed Income

• US Treasury markets were closed for a public holiday overnight but have started trading today on a positive footing in the hopes that the debt deal reached between US president Joe Biden and Speaker of the House Kevin McCarthy will pass through Congress. The front end of the UST curve has gained as the deal should eliminate the prospect of the US defaulting on interest payments while the 2yr UST is trading near unchanged at 4.57%. Yields on the 10yr are down 4bps at 3.756%.

FX

• Currency markets showed little direction overnight with public holidays impacting trading in many markets. EURUSD ended the day lower by 0.1% at 1.0708 while GBPUSD was marginally higher at 1.2355. USDJPY also pushed in favour of the yen, down 0.1% to 140.45.
• Commodity currencies were generally stronger with USDCAD down by 0.2% at 1.3592, AUDUSD rising 0.3% to 0.6539 and NZDUSD trading with a marginal upward bias at 0.6056.

Equities

• European equity markets started the week on the back foot despite the positive news from the US over the weekend, but with the US and UK closed, there was little marked activity in either direction. The composite STOXX 600 ended the day down 0.1%, with the CAC and the DAX both closing 0.2% lower.
• Locally, the DFM added 0.1% while the ADX dropped 0.4%. The Tadawul closed flat while in Turkey the Borsa Istanbul added 4.1%.

Commodities

• Brent futures settled slightly higher in thin trading, rising by 0.2% at USD 77.07/b. There was no trading in WTI futures overnight. Markets will be looking ahead to the OPEC+ meeting this coming weekend for signals on where prices will go from here.