The upside in a global stock market rout may ironically be a healthier housing market – at least in the short term, say economists.

“The housing market has nine lives. Every time interest rates are supposed to go down, something happens and it helps to keep the market going,” said Benjamin Tal, senior economist at CIBC World Markets.

Interest rates were supposed to be headed up before the crisis of terrorist attacks in New York on 9/11, and the last crash in 2008. But that didn’t happen. And it looks like rates will be staying down for a while, says Tal.

The market is already betting that Bank of Canada Governor Mark Carney’s plans to hike interest rates as soon as September will have to be put off until the end of next year.

South of the border, the Federal Reserve said Tuesday that it expects “exceptionally low levels of the federal funds rate at least through mid-2013.”

And ironically, while the U.S. has experienced a downgrade in its credit rating from Standard & Poors, investors have continued to pile into the Treasuries market.

The U.S. dollar remains the global reserve currency as investors head for shelter as they find few safe haven options out there.

The demand for treasuries means that yields have gone even lower. Which means there is downward pressure on longer-term interest rates. Long-fixed term rates are affected by a variety of factors such as competition for funds in financial markets and to prices in the bond market. Short-term rates are more affected by the key overnight central bank rate.

“The interest rate environment will continue to be very attractive for homebuyers for both short term and longer term borrowing costs. With the safety of U.S. bonds that’s keeping longer term rates low,” said Scotiabank economist Adrienne Warren.

World markets breathed a huge sigh of relief on Monday after President Barack Obama said U.S. lawmakers agreed to a last-minute deal to raise the U.S. debt ceiling, preventing the world’s largest economy from defaulting.

Obama said Republican and Democratic leaders thrashed out the details of a deal that would cut more than $2 trillion of federal spending over the next decade and avoid a potentially devastating default.

The agreement has to be voted for by both houses in Congress, though no votes are anticipated Monday.

“It still has to be approved by Congress, so there is always the potential for a stumble here, but market reaction seems confident it will pass,” said David Jones, chief market strategist at IG Index.

Investors have watched the political brinkmanship over the past couple of weeks with increasing anxiety. A failure by U.S. lawmakers to agree an increase in the debt ceiling by Tuesday’s deadline raised the real prospect that the U.S. government would not be able to pay all its bills.

The spectre of a debt default had weighed on markets in recent weeks, sending stocks sharply lower. Obama’s announcement that a deal is near caused stocks to rally on Monday.

In Europe, the FTSE 100 index of leading British shares was up 1.3 per cent at 5,890, while Germany’s DAX rose 0.7 per cent to 7,208. The CAC-40 in France was 1.1 per cent higher at 3,712. Wall Street was poised for a solid open, too — Dow futures were up 1.2 per cent at 12,236 while the broader Standard & Poor’s 500 futures rose a similar rate to 1,304.

In contrast to the stock market gains, gold was trending lower after hitting an all-time high last week as investors searched out the precious metal through its widely-perceived as a safe haven. It was trading 0.8 per cent lower at $1,615 an ounce.

Though a debt default appears to have been avoided, worries over U.S. finances are likely to persist and a number of analysts think the credit rating agencies may still downgrade the country’s triple A rating.

Lee Hardman, a currency economist at The Bank of Tokyo-Mitsubishi UFJ, said the dollar is likely to “come under increasing selling pressures in the weeks ahead in anticipation of a downgrade.”

The dollar drifted lower against the euro on Monday following news of a deal. The euro was trading 0.4 per cent higher on the day at $1.4441.

Once a deal is signed, sealed and delivered, investors will likely start to focus on a raft of economic data this week, which culminates Friday with the closely watched monthly U.S. non-farm payrolls report. The consensus in the markets is that the U.S. economy only generated around 100,000 jobs during July, not enough to get the unemployment rate lower.

Figures last week showed that the U.S. economy grew by a much lower than expected annualized rate of 1.3 per cent in the second quarter of the year.

Later Monday, the main point of interest will the monthly U.S. manufacturing survey from the Institute for Supply Management. They come in the wake of weak manufacturing surveys for the eurozone, Britain and China.

A growing concern in the markets is that China, which has been a bright spot over the past few years, is slowing down sharply. That could have repercussions for other countries that are looking for it to continue shore up the global economy.

Chinese shares underperformed their counterparts in Asia after HSBC’s purchasing managers’ index fell to its lowest level in 16 months and showed manufacturing activity contracting. A survey by an industry group, the China Federation of Logistics and Purchasing, showed activity expanding but only slightly. China’s main index in Shanghai rose only 0.1 per cent to 2,703.78.

Elsewhere in Asia, Japan’s Nikkei 225 stock average closed up 1.3 per cent at 9,965.01 and South Korea’s Kospi gained 1.8 per cent to 2,172.31. Hong Kong’s Hang Seng added one per cent to 22,663.37 and China’s Shanghai Composite Index rose 0.1 per cent to 2,703.78. Oil prices spiked higher alongside equities. Benchmark oil for September delivery was up $1.34 to $97.04 a barrel in electronic trading on the New York Mercantile Exchange.

By The Associated Press, cbc.ca, Updated: August 1, 2011 7:08 AM