President Barack Obama announced Sunday night that the U.S. lawmakers have reached an agreement on raising the nation’s debt ceiling and cut spending, which provided some relief, optimism and an instant boost to the equity, commodity and currency markets.
The Asian and European stocks rose today as the U.S. government is trying to finalized the debt agreement which implies raising the government’s borrowing cap to a record and cut spending by more than 2 trillion dollars over the next 10 years. This would avert a possible default and a credit rating downgrade.
Although markets are usually calm in August as investors like to take a break and enjoy their summer vacation, volatility and swift movements are about to persist this week due to the U.S. debt situation, the European debt crisis and the amount of economic data expected in the next few days.
The US. Will release today the ISM manufacturing report, while U.K., Germany and Europe released the PMI manufacturing report for July which came in worse than expected. Europe also released the unemployment rate for June which matched the previous and the expected 9.9%.
However throughout the reminder of the week we will witness the release of some labor data from the U.S. which precede Friday’s important non-farm payrolls report. While on Thursday the ECB and BoE will issue their monetary policy decisions.
Optimism was also sustained today by China’s PMI manufacturing report for July which came above forecasts, supporting demand for higher yielding assets. This has weakened the low yielding U.S. dollar, Japanese yen and Swiss Frank during today’s morning session.
The USD is trading around the 73.75 level, the JPY is at 77.40, while the CHF is trading at 0.7900. Meanwhile the EUR rose today trading around the 1.4415 level, yet the pound failed to follow the euro’s movement after the disappointing PMI report.
Gold recorded on Friday a new record, and although today it came off its highs, it continues to trade with a positive momentum around $1614.20 per ounce. Oil gained today trading at $97.00 per barrel as growth prospects improved after the U.S. reached a debt deal agreement and could avoid a default.