Analysts view: A Sunday debt deal looks less likely

Reuters News
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Posted: Jul 24, 2011 6:03 PM
Analysts view: A Sunday debt deal looks less likely

NEW YORK (Reuters) - House of Representatives Speaker John Boehner on Sunday told his fellow Republicans that "there is a path" to cut U.S. spending and raise the debt ceiling, but it will require his party to accept sacrifices, according to two sources who heard his message.

On a conference call, Boehner said he does not think it is possible to negotiate a large spending-cut deal directly with the White House, the sources said.

COMMENTS:

BORIS SCHLOSSBERG, HEAD OF RESEARCH, GFT FOREX, NEW YORK

"I think markets are going to take a wait-and-see attitude. Swiss franc was stronger across the board but it is nowhere near the type of panic we've seen in the past. Markets are still hoping some deal is going to get done. The dollar is under mild pressure, but we don't see severe panic. If by the end of the day tomorrow there's no progress, though, that's when anxiety is going to escalate. For now, there's still a shred of hope. IF they go that route and the debt ceiling is lifted, there will be a relief rally but it could be very short-lived, especially if the ratings agencies act on a downgrade. If they don't produce a substantive deal like the Europeans did, it could get messy."

JIM AWAD, MANAGING DIRECTOR AT ZEPHYR MANAGEMENT IN NEW YORK

"Last I heard there's going to be nothing today, no compromise between Boehner and Obama, and that the Republicans will try and come up with something tomorrow. I suspect the initial reaction in markets will not be happy. I don't think they'll go into a panic because they'll wait to see what happens tomorrow, but we were hoping that by the open of Asian markets they would accomplish something. The reaction will be negative, but not hugely negative unless there's no change by the close of business tomorrow.

"Corporate earnings are good for the moment, and the market is assuming the Greek package will work for a few months and that somehow the U.S. package will get done. So markets are focusing on earnings, which are pretty good. Still, markets have the potential to be disappointed in a major kind of way. A default and downgrades are both concerns, but a default is more serious. It has the potential to be like Lehman on steroids, as Larry Summer said. It is a very serious near-term issue, even if markets are still assuming it won't happen. Of course there's no way to forecast what will happen. There are a lot of possibilities, between a default, some kind of deal from the House and Senate that gives Obama cover and that he can accept, or a proposal that he can't accept. It's too early to tell, but a default is not priced into markets right now."