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European stock markets were higher in pre-trade amid impending Congress vote on the proposed US debt ceiling bill.
European markets opened higher on Monday following the US debt ceiling deal between President Joe Biden and House Speaker Kevin McCarthy. Over the weekend, the two high-ranking politicians finally agreed to raise the US debt ceiling, thereby preventing a default. In light of the deal, Biden and McCarthy now seek to convince Congress to approve implementation in the coming week.
European Markets Respond Positively to US Debt Ceiling Development Following Choppy Week
The development of the US debt ceiling saw European stock markets, including Germany’s DAX and France’s CAC40, up 0.5% in pre-trade. All sectors were marginally higher, with autos and banks at the forefront of gains. The European market upswing also follows a turbulent week where the Stoxx 600 index slumped to an 8-week low before paring some losses Friday. The pan-European index closed 1.2% higher on May 26th after enduring three negative sessions that saw it fall to its lowest level since early April.
On Friday, all sectors closed in positive territory, with tech stocks leading the way following Nvidia’s (NASDAQ: NVDA) stellar operational outlook.
UK markets are closed today for a bank holiday, while US markets remain closed for Memorial Day.
Takeaways from Debt Ceiling Development
On Friday, US Treasury yields fell as investors awaited updates on debt ceiling negotiations and the release of critical inflation data. However, following successful debt ceiling negotiations between US political leaders, Republican and Democratic lawmakers must now vote to support the new bill. Biden and McCarthy’s proposed measure must secure enough bipartisan Congress support before the June 5th deadline to avoid a potential first-ever government default.
However, reports suggest that the US House of Representatives could vote by Wednesday, with the upper chamber following suit later this week. With debt-limit negotiators quickly drafting the bill’s wording, Biden expressed relief at the agreeable conclusion between himself and McCarthy. On Sunday evening at the White House, the Democratic US president described the outcome with the Republican speaker as “good news”. Furthermore, Biden added late yesterday:
“The [debt-ceiling] agreement prevents the worst possible crisis, a default, for the first time in our nation’s history. Takes the threat of a catastrophic default off the table.”
The US president also urged both parties in the legislature to come together to pass the bill swiftly. “The speaker and I made clear from the start that the only way forward was a bipartisan agreement,” Biden pointed out.
A Lot at Stake with Impending US Debt Ceiling Bill Voting Session
The debt-ceiling agreement proposes spending cuts but could alienate some lawmakers as they inspect the bill’s inherent concessions. However, Biden remains confident that the bill would secure the necessary votes to see implementation. McCarthy also expressed optimism at the outcome of the voting process, saying, “[ultimately] people can look together to be able to pass this”.
A US debt default could freeze the already compromised financial markets and trigger a global fiscal crisis. Should this occur, analysts predict widespread doom, including sky-high unemployment and borrowing rates, and a stock-market plunge. Furthermore, analysts also say a default could impact the Treasury debt market and erode household wealth.