U.S. Debt Deal Reached: Stocks Jump, Gold And Yen Fall As Investors Cut Safety Trades
SINGAPORE (Kevin Plumberg) - Equities rose while gold and the yen dropped on Monday, with investors cutting safety trades after Washington reached a last minute deal to escape default, though the top U.S. credit rating could still be downgraded.
After a tense weekend in which rival plans to lift the U.S. borrowing limit were shot down in Congress, U.S. President Barack Obama said leaders from both parties reached a deal to cut the budget deficit by $1 trillion over 10 years, with additional saving possible.
U.S. S&P 500 stock futures bounced 1.4 percent and futures on U.S. Treasuries -- which have maintained their haven status despite being at the eye of the debt ceiling impasse -- slid .
Investors were still on guard though since the plan, which will come to a vote in Congress on Monday, may not necessarily satisfy Standard & Poor's enough to keep the U.S. triple-A debt rating.
"There was concern that if you had this extreme tail event -- if the U.S. did default -- that positions would have to be cut and financial markets would be thrown into turmoil, so they sold off on that risk," Steven Englander, head of G10 currency strategy, told Reuters Insider. "Now that the risk is down, the risky assets are rallying but the dollar still doesn't look that attractive."
Japan's Nikkei share average rose in line with U.S. futures, up 1.7 percent as investors bought back technology-related shares.
The MSCI index of Asia Pacific stocks outside Japan was up 0.9 percent after falling for the past two sessions, led by commodity-related shares.
The U.S. dollar index , which measures its value against a basket of six other major currencies, was largely unchanged on the day. The euro weighs heavily in the basket, and so the index reflected deep-seated fears about the fiscal unsustainability for both the United States and the euro zone.
The dollar shot up against the yen, up 0.7 percent to 78.00 yen , which slid broadly as safe haven trades were closed out. Traders in Asia had been keeping a close eye on the yen, since the dollar dropped below 77 yen to a four-month low of 76.70 yen on Friday, raising fears of yen-selling intervention by Japanese authorities.
U.S. Treasury debt futures fell in electronic trading. The 10-year Treasury futures were down 10/32 to 125 12/32, and in the cash market, the benchmark 10-year yield rose five basis points to 2.84 percent .
Oil futures also rose. U.S. crude rose $1.29 to $96.99 a barrel, while Brent crude gained $1.18 cents to $117.92.
Gold prices tumbled 1 percent to $1,609.89 an ounce, down from a record high of $1,632.30 .
Many investors believe focus will shift to the likelihood of a rating downgrade now.
"I think it's an almost foregone conclusion that there is going to be a downgrade at some point." said Peter Kenny, managing director in institutional sales at Knight Capital Group in Jersey City, New Jersey.
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First Posted: 07/31/11 10:33 PM ET Updated: 09/30/11 06:12 AM ET