Global investors still uncertain about whether US default crisis is averted 

Some are wary that proposed spending cuts could weigh on US economic growth.

US president Joe Biden speaks in the Roosevelt Room of the White House on Sunday about the debt deal he reached with Republican Kevin McCarthy.

Global investors are trying to work out how a tentative deal to raise the US debt ceiling could ripple through markets, following an agreement to get it through Congress before a June 5 deadline.

A deal to lift the $31.4 trillion (€29.3trn) debt limit announced by the White House and House Republicans over the weekend would avert a catastrophic US default and boost overall appetite for risk, while also buoying some of the sectors that have been left behind in this year’s tech-led rally, investors said.

The initial reaction was positive — the cost fell for holders of US debt paper to insure against an unprecedented US default. 

But some investors are wary that proposed spending cuts could weigh on US economic growth. At the same time, a negotiation process that barely avoided a default threatens to undermine the US standing with credit-ratings agencies.

“While the White House's debt-ceiling agreement is great news, the US government still has a cashflow problem and time is of the essence to finalise the agreements,” said Bob Stark, global head of market strategy at Kyriba. 

The debt-ceiling agreement is only the first step in saving the government from the brink of illiquidity.” 

The deal suspends the debt ceiling until January 2025 in exchange for caps on spending and cuts in US government programmes.

Narrow margins in the House and Senate mean that moderates from both sides will have to support the bill.