Wall Street stocks traded cautiously on Tuesday as traders looked for signs of a breakthrough to the impasse in Washington over the US debt ceiling.
The benchmark S&P 500 was down 0.3 per cent in New York, reversing its gains from the previous session, while the Nasdaq Composite was up 0.2 per cent.
Trading was overshadowed by the possibility that US president Joe Biden and Republican House Speaker Kevin McCarthy would not settle on a deal to increase the nation’s spending limit by the end of today’s meeting. The US could default on its debt as early as next month if no deal is reached.
There is “little chance that there would be an agreement today,” said Nadège Dufossé, head of asset allocation at Candriam, an asset manager. “Bottom line, no agreement means higher rates and a negative impact on equities,” she noted.
The yield on interest rate-sensitive two-year Treasury notes rose 0.1 percentage points to 4.1 per cent, while the yield on the 10-year note was up 0.05 percentage points at 3.98 per cent. Bond yields rise when prices fall.
Yields on one-month Treasury bills lost 0.07 percentage points on Tuesday, having hit 5.53 per cent on Monday, their highest levels since before the financial crisis in 2007-08.
“It’s clear that investors are still nervous about the issue,” said Deutsche Bank strategist Jim Reid. “That’s a big kink at the front of the yield curve, centred around the one-month mark, which is when fears of a potential default are at their highest,” he added.
The dollar lost 0.2 per cent against a basket of six other currencies.
The moves come as data from the Census Bureau showed that US retail sales rose 0.4 per cent in April, swinging up from the previous month, but landing far below the 0.8 per cent rise forecast by economists.
“For markets, the retail sales data provides an extra bit of colour to what is looking like a picture of a cooling US economy,” said Simon Harvey, head of forex analysis at Monex Europe.
Yet separate data from the Federal Reserve pointed to industrial production rising by 0.5 per cent in the month to April, far exceeding economists’ expectations of a no-change reading.
In Europe, the region-wide Stoxx 600 closed down 0.4 per cent, while Germany’s Dax index lost 0.1 per cent and France’s Cac 40 shed 0.2 per cent.
The moves came after Germany’s Zew indicator — a gauge of economic sentiment for the eurozone’s largest economy — plummeted from 4.1 to minus 10.7 in the month to May, its lowest level this year. The reading was well below the forecast of economists polled by Reuters.
“It seems as if investors in Europe are following the paradoxical pattern that bad news on the economy is good news on rates as it would stop the European Central Bank [raising rates],” said Carsten Brzeski, global head of macro at ING.
Asian equity markets were subdued, with China’s CSI index posting a 0.5 per cent fall after official data showed that the world’s second-largest economy was failing to regain momentum, despite its reopening after a lengthy Covid-19 shutdown.
Hong Kong’s Hang Seng was flat, while Japan’s Topix gained 0.6 per cent and climbed to its highest level in almost 33 years as improvements in corporate governance make Tokyo more attractive to foreign investors.
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