Small market movements following the weekend US debt ceiling agreement. US equity futures up 0.3%; Treasury futures little changed, AUD slightly higher

Markets are quiet with the US and UK on holiday. Initial reaction to the US debt ceiling agreement over the weekend has been muted with small changes in equity futures, rates and currencies.

After agreement “in principle” on the US debt ceiling – which sees the ceiling suspended until 1 January 2025 and capped non-defence federal spending for two years – President Biden and House Speaker McCarthy are confident that the deal will be passed by Congress.  Voting is expected to begin from Wednesday.  While there will be some politicking ahead of the vote on the flanks of both parties, there looks to be sufficient support to pass the bill into law.

Bond investors will be focused on how a flood of T-bill issuance, as the US Treasury rebuilds its cash balance, will impact on the broader bond market as liquidity gets drained out of the banking system. All this set against the Fed’s ongoing QT which is working in the same direction.

Analysts note that the deal implies some marginal fiscal headwinds over the coming year, but not material enough to prompt a revision of forecasts. Market reaction post the debt ceiling deal has been muted so far, a sign that most in the market were anticipating a last-minute deal, although the long US weekend means that market trading is quiet.

Apart from some significant price action in near-term T-bills, the broader market reaction has been uneventful. S&P500 futures are up 0.3% while 10-year Treasury futures suggest a slightly lower yield. European yields were lower, with Germany’s 10-year rate down 10bps to 2.43%, while the Euro Stoxx 600 index closed down 0.1%.

Currency market reaction has also been muted, with movements against the USD for all the key majors contained to within plus or minus 0.3%.  Commodity currencies are slightly stronger. The AUD trades this morning at 0.6540. The NZD has traded roughly in a 0.6045-0.6070 range and currently sits at 0.6055.  NZD/AUD has drifted down to 0.9260.

EUR is down slightly but hanging in just above 1.07.  GBP is slightly higher at 1.2360. The yen is slightly stronger, with USD/JPY down to 140.40.

The domestic rates market had a quiet day, with rates marked down 2-4bps across the NZGB and swaps curves, the market now having settled after the significant post-RBNZ re-pricing.

The economic calendar remains light over the next 24 hours, with the pick of the bunch being US consumer confidence, expected to show some moderation on the Conference Board measure.