(Updated version after preliminary agreement in the U.S. debt dispute)
FRANKFURT (dpa-AFX) - The preliminary agreement reached over the weekend in the U.S. debt dispute could provide some relief for investors in the new trading week. The looming insolvency of the world's largest economy had recently put pressure on stock markets worldwide and pushed the Dax below its recent record high of 16,331 points.
U.S. President Joe Biden and Republican Kevin McCarthy had announced a preliminary agreement in Washington on Saturday (local time). A default of the United States is thus probably averted. However, the plan still has to be approved by Congress.
Expert Thomas Altmann of QC Partners warned against too much euphoria: "It is still too early for a final sigh of relief. But it is allowed to take a deep breath." Despite the agreement, investors should not expect big price jumps. "Because especially in the stock and bond markets, the looming agreement has already been successively priced in recently."
According to the White House, Biden said this is an important step forward that lowers spending while protecting important programs for working people and strengthening the economy for everyone. "The agreement represents a compromise, which means not everyone gets what they want." Over the next few days, negotiating teams would finalize the bill's text. The agreement would be sent to the House and Senate. "I urge both chambers to pass the agreement immediately."
McCarthy, after speaking on the phone with Biden according to his own statements, said, "After weeks of negotiations, we have reached an agreement in principle. We still have a lot of work to do. But I believe this is fundamentally an agreement worthy of the American people." Accordingly, a vote in the House of Representatives is scheduled for Wednesday.
The bill must pass both chambers of Congress and be signed by the president as soon as possible to effectively avert a looming default by the U.S. government. U.S. Treasury Secretary Janet Yellen had most recently warned that the money could run out on June 5. This had been preceded by an intense dispute that had even prompted U.S. President Joe Biden to cancel foreign trips.
In the meantime, the dispute had threatened the creditworthiness of the USA. On Wednesday evening (local time), the rating agency Fitch retained the top rating of "AAA" for the world's largest economy, but lowered the outlook for the credit rating to "negative", so that a downgrade could be threatened.
The months-long dispute had brought the USA to the brink of insolvency. If this had actually happened, a subsequent global financial crisis could have triggered a severe economic downturn. The U.S. would then have been unable to pay most of its bills - millions of people could have lost their jobs as a result.
Even if the final agreement is reached in time, investors will hardly have time to catch their breath. Because already on Friday, the second important weekly event is on the agenda with the monthly U.S. labor market report - it is a decisive factor for the interest rate policy of the U.S. central bank Fed. According to the minutes of the latest interest rate meeting at the beginning of May, no clear monetary policy course is currently emerging. Given the significant monetary tightening since March 2022 in the fight against inflation, observers are currently most likely to expect a pause in interest rates.
Because of the steep increase, fears have been doing the rounds for some time that the U.S. economy could slide into recession this year. Just a few weeks ago, market turbulence caused by the problems of several U.S. specialty and regional banks as a result of high interest rates had also worried investors. These had spilled over into Europe and dragged the major Swiss bank Credit Suisse into the abyss. On this side of the Atlantic, too, the economy is giving enough cause for concern. It was recently announced that Germany, Europe's largest economy, unexpectedly slipped into recession in the first quarter.
Due to the uncertainty about the persistent inflation and the economic framework conditions, the capital markets have been trapped in a broad sideways movement for quite some time, Claudia Windt of Landesbank Helaba recalled. This is also evident in the Dax, which after a brief period of strength and the resulting record high quickly slipped back into the trading range of previous weeks. The situation is not much different for the Eurozone's leading index, the EuroStoxx 50 - except that, unlike its German counterpart, it is far from a record high. Accordingly, apart from the U.S. labor market report, some other economic data should be worth a look.
The new week begins - apart from possible headlines on the way to the final agreement in the U.S. debt dispute - probably rather leisurely: On the German stock market is traded on Whit Monday, but not on several other stock exchanges. New York and London, for example, have an extended weekend, and important economic data and corporate appointments are not on the agenda.
On Tuesday, the news situation is also still comparatively quiet. Announced are, among other things, the quarterly figures of the MDax-listed commercial real estate specialist Aroundtown, as well as data on economic and industrial confidence in the euro zone and consumer confidence in the United States. This will be followed in midweek by the quarterly report of financial services provider Wüstenrot & Württembergische, purchasing managers' indices from China, an important market for Germany, and consumer prices from Germany.
On Thursday, the schedule includes the publication of further purchasing managers' indices and the ADP report on employment trends in the U.S. private sector, which is considered an important indicator for the government's labor market report on Friday.
On Friday, the news agenda looks quite clear - apart from the U.S. labor market report. At electronics retailer Ceconomy, a capital market day could move the share price./gl/edh/men/he
--- By Gerold Lohle, dpa-AFX ---
