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World Markets Rise on News of US Debt Deal

August 1, 2011

Global financial markets welcomed the deal in Washington to avoid a debt default by the government of the world’s largest economy.

U.S. and Asian stock markets moved higher and most European markets posted gains Monday after U.S. President Barack Obama and congressional leaders made a deal to increase the legal limit on borrowing and cut government spending.

The price of gold dropped more than $15 to sell at $1,612 an ounce. Gold is traditionally a refuge for investors worried about the economy, so the price drop may be linked to easing of economic tensions.

The price of oil rose nearly 3 percent, the largest gain in two months, as investors bet the agreement will help economic growth, which will boost energy demand and prices.

Adrian Foster, head of financial markets research at Hong Kong’s Rabobank, said there has been a clear relief rally on the news from the U.S., and he sees a rally likely to go through the end of this year. Stephen Schwartz, chief economist for Banco Bilbao Vizcaya in Hong Kong, said a lot of events still can move the market, but he thinks the tone is now set for a rebound.

Despite the proposed deal, there is still a chance that rating agencies will eventually downgrade U.S. bonds because of the uncertainly of future spending cuts and the general anxiety among investors caused by the debt crisis.

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