(Bloomberg) — Markets are largely in the green Friday but strategists warn there’s still a prospect US debt-ceiling negotiations break down over the weekend or result in draconian spending cuts that crimp global economic growth. Assets in Asia are especially vulnerable as they will be the first to react to any agreement when they open Monday as the US will be shut that day for a holiday. Republican and White House negotiators are making progress toward a deal to raise the debt limit but details remain tentative and they are yet to agree on the size of a cap for federal spending, according to people familiar with the talks. Spending cuts required to get the Republican side to agree on a deal could cost as many as 570,000 jobs, a Bloomberg Economics model shows.
“The outcome of any resolution will probably amount to a fiscal contraction that’s not entirely priced in by the market,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management in Singapore. “When you’re trying to rebuild cash balances like crazy, that build-up sucks out liquidity at a time when the markets have kind of whistled past the graveyard a little bit.”
Fitch Ratings said it may cut its AAA rating for the world’s biggest economy to reflect the increased partisanship that’s preventing a deal. Regional equities ticked higher Friday, but that was driven more by a rebound in technology shares than optimism over a potential agreement. There’s no certainty any debt deal will be the end of the issue, especially as bond markets are potentially underpricing the risks related to the final agreement, according to Owen Gallimore, head of Asia-Pacific credit analysis at Deutsche Bank AG in Singapore.
“The resolution can quickly turn into a selloff,” he said. “Bearish calls this year of credit-market woe have not played out yet, and the market in Asia is trading tight spreads into this situation, so the risk-reward isn’t good.” NN: I am very uneasy with this stock market rally. I know the world is enamered with the latest Artifical hype. I just don’t see where the profits are. And it strikes me as deperation. Especially when you consider the FED has got the markets in their crosshaires……. Where is the money ball?