Asia markets rise on US debt deal hopes

Geoffrey Lunt from the banking group HSBC on the impact of the US government shutdown on Asia.

Asian stock markets have risen on hopes the US will reach a deal on raising its debt ceiling, tracking overnight gains on Wall Street.

This was after US Republicans offered President Obama a short-term increase in the debt limit to stave off default.

Stock indexes in Japan, Australia, China and Hong Kong all gained.

There have been concerns that a failure to agree a deal to raise the limit may see the US default on its payments and hurt the global economy.

Start Quote

I think the US Congress needs to be aware that the repercussions go way beyond the borders of the United States”

End Quote Geoffrey Lunt HSBC

Analysts said the offer by the Republicans had raised hopes that such a scenario was likely to be avoided.

"What this is, is opening the door to discussion and negotiation when before we had two sides just finger pointing," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC.

"We don't know if in six weeks we'll be in the same place, but at least this opens the possibility [of a deal]", he said.

Japan's Nikkei 225 index rose 1.5%, Hong Kong's Hang Seng gained 1.2%, Australia's ASX 200 added 1.6% and South Korea's Kospi was up 1.2%.

On Thursday, the US markets had their best day since January 2013, buoyed by the proposal. The Dow Jones, S&P 500, and Nasdaq indexes all closed up by more than 2%.

'Very serious situation'

The US needs to agree on raising the nation's $16.69 trillion (£10.47tn) debt ceiling by 17 October.

Market Data

Last Updated at 04:20 ET

Market index Current value Trend Variation % variation
Nikkei 225 14516.27 Up 98.74 0.68%
ASX All Ords 5444.80 Up 32.20 0.59%
Hang Seng 22760.24 Up 64.23 0.28%
SSE Composite 2097.75 Down -1.14 -0.05%
SSE SE 50 1521.28 Up 0.72 0.05%
BSE Sensex 22628.84 Up 351.61 1.58%

A failure to do so could see the US government default, as it runs out of money to pay its bills and service its national debt.

Analysts have said such a scenario was likely to have a serious impact on global economic growth.

"It would mean higher interest rates for everybody across the world," Geoffrey Lunt from the banking group HSBC told the BBC. "This is a very serious situation."

"I think the US Congress needs to be aware that the repercussions go way beyond the borders of the United States," he added.

In the past few days, before Thursday's recovery, the impasse over the debt limit had hit markets and increased the interest rate for one-month US Treasury bills.

The International Monetary Fund chief Christine Lagarde has also warned that failure by Washington to raise the federal debt ceiling would wreak serious damage on the US and global economies.

Continued shutdown

The offer by the Republicans comes as the US government continues to remain in a partial shutdown

House of Representatives Speaker John Boehner said the offer was in exchange for negotiations with the White House to end the shutdown that began on 1 October after Congress failed to agree on a new budget.

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

Mr Boehner told reporters on Thursday: "What we want to do is to offer the president today the ability to move a temporary increase in the debt ceiling in agreement to go to conference on the budget for his willingness to sit down and discuss with us a way forward to reopen the government."

The government has closed non-essential operations due to the shutdown.

Goldman Sachs has estimated that if the shutdown were to extend into a third week, it could shave as much as 0.9% from US GDP growth this quarter.

Crucially, markets have been left in the dark about the current state of the US economy, as the agencies responsible for closely watched data like the jobs figures and inflation have been closed during the shutdown.

On Thursday, JPMorgan Chase sold the US government debt in its portfolio that might be exposed to default in the event that the debt ceiling is not raised.

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