Biden strikes deal to raise US debt ceiling, Japanese market gains

During the last weekend, an agreement was reached between US President Joe Biden and congressional leaders to increase the US debt ceiling. This will allow the government to borrow more money and spend it on infrastructure and social welfare programs. The bill is expected to be voted on later this week.

The news had a positive impact on early trading in the Asian market on Monday. Japan’s Nikkei closed 1.03% higher at 31,233.54, with the index reaching as high as 2.04% during trading hours. Similarly, Topix also gained 0.69%, breaking a four-day losing streak and closing at 2,160.65. However, the Hang Seng index in Hong Kong continued its downward trend and dropped 0.92% by the end of trading.

In mainland China, the Shanghai Composite 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.

Looking ahead, economic developments in the Asian market will be crucial to watch. Key events this week include 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 that.”

US Dollar Index to Strengthen amid US Debt Ceiling News

Later this week, the US will release 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 slightly against the USD 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,” he said.