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Stocks rally as US default risk removed for now

·3-min read
A Republican offer to break the debt ceiling standoff in Washington has given investors a much-needed boost (AFP/Samuel Corum)

Stock markets around the world rallied Thursday as the United States temporarily resolved a political logjam that had raised the risk of a catastrophic US government default.

The dollar was mixed against its main rivals ahead of key US jobs data due Friday.

The deal announced by Chuck Schumer, who leads the Democrats in the US Senate, clears the way for lawmakers to approve a two-month increase in the government's borrowing limit.

The country had been just days away from the point it was estimated it would be unable to service its current debt, an event that would have shattered the US economy and led to a global recession.

Major US indices gained about one percent, with gains even bigger in some leading European and Asian bourses.

"The market gets a little breathing room for now in the idea that a default situation will be avoided until at least December, yet it remains saddled with an understanding that this is just a kick-the-can down the road approach," said Patrick J. O'Hare of Briefing.com.

A decision by US President Joe Biden and Chinese leader Xi Jinping to hold a virtual meeting also provided a much-needed boost to trading floors that have been starved of good news in recent days.

- Soaring inflation -

Economies have battled a string of problems in recent weeks, including surging inflation, an expected beginning of a reduction in economic stimulus and a growing run on energy supplies.

The cost of a barrel of oil has roared higher as the global economy reopens from Covid-19 lockdowns, while the approaching northern hemisphere winter has led to the price of natural gas doubling from last month.

Some of the concerns about an imminent supply crunch have been eased by signals from Russia that it will provide more gas and that the United States government could release oil from its strategic reserves.

But the run-up in the energy market has ramped up fears that it will further fuel inflation, forcing central banks to wind in their ultra-loose monetary policies earlier than envisioned to prevent prices from running out of control.

Investors are now looking towards the release Friday of US employment data for its impact on the Federal Reserve's plans to taper its bond-buying program.

"This month's US jobs report will likely only have to clear the lowest of hurdles to keep the Fed on track" to begin reducing stimulus as soon as next month, said Matt Weller, global head of research at FOREX.com and City Index.

"Indeed, some analysts are suggesting that as long as US economy creates at least 100,000 net new jobs, the Fed will feel comfortable announcing its tapering plan," he added.

- Key figures around 2050 GMT -

New York - Dow: UP 1.0 percent at 34,754.94 (close)

New York - S&P 500: UP 0.8 percent at 4,399.76 (close)

New York - Nasdaq: UP 1.1 percent at 14,654.02 (close)

London - FTSE 100: UP 1.2 percent at 7,078.04 (close)

Frankfurt - DAX: UP 1.9 percent at 15,250.86 (close)

Paris - CAC 40: UP 1.7 percent at 6,600.19 (close)

EURO STOXX 50: UP 2.1 percent at 4,098.34 (close)

Tokyo - Nikkei 225: UP 0.5 percent at 27,678.21 (close)

Hong Kong - Hang Seng Index: UP 3.1 percent at 24,701.73 (close)

Shanghai - Composite: Closed for a holiday

Euro/dollar: UP at $1.1558 from $1.1556 at 2100 GMT

Pound/dollar: UP at $1.3615 from $1.3582

Euro/pound: DOWN at 84.86 from 85.09 pence

Dollar/yen: UP at 111.63 yen from 111.41 yen

Brent North Sea crude: UP 1.1 percent at $81.95 per barrel

West Texas Intermediate: UP 1.1 percent at $78.30 per barrel

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