A deal among Democrat and Republican leadership to narrow deficits in exchange for lifting the government's $14.3 trillion debt ceiling will bring only short-term relief to the country's anxious capital markets, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.
"This relief will be short," El-Erian tells ABC, hours before leaders from both parties announced a deal.
"The rest of the world is watching, and this will do very little to reduce the concern that the rest of the world has about the role of the U.S. in the global economy."
(Associated Press photo)
The deal, which still needs overall congressional approval, doesn't mean that some ratings agencies won't make good on their threats to strip the U.S. of its AAA ratings.
"If the U.S. loses that AAA status, it will be much more difficult for the U.S. to restore growth, so it's unambiguously bad," El-Erian says.
The economy remains sluggish at best.
"My expectation is we get a little bit of a bounce and then the market isn't able to sustain it," says Barry Knapp, head of equities portfolio strategy at Barclays, CNBC reports.
Unemployment figures have done nothing but disappoint during the last few months.
More flat jobs growth could wipe out any optimism from the debt ceiling deal.
"I think "deal" provides some relief rally but market does not turn up until macro data does," Deutsche Bank chief U.S. equities strategist Binky Chadha, writes in an email, CNBC adds.
"I see the recent data as indicating the uncertainty created by debt issues in U.S. and euro areas have slowed activity, so it takes longer."
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