“World Markets Climb Despite American Debt Negotiations”

2023-05-20 11:21:00

Despite the risk of seeing the United States default (and the catastrophic consequences for the American and global economy) that would result from a failure by June 1 of the negotiations on the American debt between the Republicans and the White House , the main world financial centers have the wind at their back, driven in particular by the hope of an end to this soap opera before the deadline. What is not won following the Republicans’ decision on Friday to take a “break” due to numerous differences before returning to the negotiating table in the evening. This moment of tension, which contrasted with the hope expressed the day before by Joe Biden to complete an agreement in principle soon, cut off the momentum of the New York Stock Exchange, which finally ended in the red on Friday. Result: the indices which had started in the green lost 0.33% for the Dow Jones at 33,426.63 points, 0.24% for the Nasdaq (12,657.90 points) and 0.15% for the S&P 500 (4,191 .98 points).

This Saturday in Japan where he went to participate in the G7, the American head of state tried to play down and reaffirmed his optimism regarding an early resolution of the negotiations.

« I still think we will be able to avoid a default.” payment, he assured.

It remains to be seen, following this cold shower, how the markets will react on Monday. In the United States as elsewhere in the world. Because on Friday, before the announcement of these tensions on the American debt, the European stock market indices closed sharply higher. A euphoria carried in part by the hope of a resolution on the ceiling of the American debt. But not only. The prospect of a moderation in central bank rate hikes linked not only to easing recession risks but also to slowing inflation on both sides of the Atlantic is indeed giving European indices a tailwind. .

Record for the Dax

On Friday, the Eurostoxx 600 hit its highest level in fifteen months. Paris gained 0.61%, Milan 1.05%, London 0.19% and Frankfurt ended up 0.69% at 16,275.38, narrowly beating its previous high at the January 2022 close following setting in session a new all-time high (16,331.94 points). Dax’s previous record was from November 2021 at 16,290.19 points, before Russia’s invasion of Ukraine and the ensuing energy crisis. Last October, before a winter that promised to be difficult in terms of energy, it was still at 12,000 points.

« Inflation and recession fears are, for a while at least, out of sight and mind of market participants “explained Timo Emden, independent analyst.

The German economy held up better than expected this winter to the energy crisis and geopolitical tensions, which had raised fears of a recession at the start of the year, following a decline of 0.5% in the last quarter of 2022. GDP for the first European economy finally stagnated between January and March. And following peaks reached in August, gas prices, which are particularly important for German industry, have even returned to their pre-crisis level on the short-term markets. Inflation, which remains very high in the country, has also begun a slow decline, reaching 7.2% in April, once morest 8.8% at its peak in October. This decline, which can also be observed in the United States and in most of the euro zone, allows the markets to hope for an imminent slowdown in the rise in interest rates led for several months by the central banks in the face of the rise prices. The hope of an agreement in Congress between the US government and the Republican opposition on the debt is also pushing the hopes of the German market.

The CAC 40 close to 7,500 points

For its part, the Paris Bourse continued to accelerate on Friday, ending up 0.61%. The CAC 40 is close to 7,500 points (which it moreover exceeded half an hour before closing), investors regaining a taste for risky assets such as shares. It gained 45.07 points to 7,491.96, its highest closing level since April 25. Over the week, it took 1.04%, an advance made during the last two sessions. For investors, the CAC 40 record, at 7,581.26 points in session, is achievable.

Investors hailed the good news on the negotiations on the extension of the u.s. debt ceiling “, explained Friday Thierry Claudé, manager of Kiplink Finance, before therefore the tensions between the White House and the Republicans. According to him, the Parisian market shows itself ” very resilient ». « TAll attempts to lower the last few days have failed ” while ” the slightest positive trigger causes it to rise “. Even “thesword of Damocles » posed by the risk of a further rise in the key rates of the American Central Bank does not affect their morale, relates the manager. On the other hand, the speeches of the central bankers in this direction pushed up the rates on the loans of the European States all week. The French 10-year rate reached 3.00%, once morest 2.85% at the end of last week.

The markets were also at the party in Japan where the Nikkei index of the Tokyo Stock Exchange reached on Friday a new highest level at the close since the summer of 1990, signing in passing a seventh consecutive session of increase. The star index of the Tokyo market gained 0.77% to 30,808.35 points and made a strong jump of 4.8% over the whole of the past week. The Nikkei thus exceeded its previous closing high since the end of the immense Japanese speculative bubble in 1990, which it had reached in September 2021.