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Stocks in Europe and Asia have risen in response to the debt ceiling increase approved by lawmakers in the US.
Stocks in Europe opened higher today after the US Senate approved a bill to suspend the government’s debt ceiling. Following a 63-36 vote, US lawmakers agreed to raise the debt ceiling to prevent the country’s first-ever debt default. Congress has now sent the approval to President Joe Biden for assent.
As of 9:30 am London time this morning, the STOXX Europe 600 climbed 0.7% after crashing to its lowest point in two months only a few days ago. Oil and gas also increased by 1.3%, while mining stocks rose 2.6% higher. In addition, France’s CAC40 and Germany’s DAX both climbed 0.7%. So far, reactions to the debt ceiling suspension have been favorable even though the votes at the House of Representatives and Senate were not landslide victories.
Fears of Inflation Regardless of Climb in Europe Stock Following Debt Ceiling Approval
Notwithstanding the current climate in Europe’s stock market, the Eurozone is still battling inflation. Although there is some respite in that regard, authorities are not convinced. Yesterday, flash figures revealed that Eurozone headline inflation fell from 7% in April to 6.1% in May, its lowest point since February 2022. Economists had expected May to end at 6.3%.
In addition to a crash in headline inflation, core inflation minus food and energy also fell to 5.3% from April’s 5.6%. Regardless, European Central Bank (ECB) President Christine Lagarde is unmoved. According to her, inflation is still too high and would likely stay this way for a while. However, she stated that the ECB will continue working to bring the region’s inflation down to 2%.
Lagarde was speaking at the Deutscher Sparkassentag 2023 conference when she revealed the ECB’s position on inflation. According to her, the apex bank cannot stop increasing interest rates yet. Lagarde said the ECB will “continue our hiking cycle until we are sufficiently confident that inflation is on track to return to our target in a timely manner”. Nevertheless, she assured that the ECB is conscious of the effects monetary policies have on the economy.
Europe stocks also opened higher last week when the US House of Representatives passed the debt ceiling vote and sent it to the Senate. Following the 314 to 117 vote, the Stoxx 600 increased. Germany’s DAX and France’s CAC40 also climbed 0.5%.
Other Financial Markets
Away from the increase in Europe stocks, other financial markets are reacting positively to the debt ceiling approval. In Asia, China’s CSI 200 index climbed 1.4%, with the Kospi in South Korea inching 1.3%. Also, Japan’s Topix recorded a 1.6% gain, no match for the 3.9% rise in Hong Kong’s Hang Seng index.
In the US, the market will be waiting for the official unemployment report which should show non-farm payrolls increased by 190,000 last month. Furthermore, the likelihood of another rate hike is low this month. Fed officials might hold off on increasing this rate again until next month.