Stocks enter danger zone due to fear of US debt

Stocks enter danger zone due to fear of US debt

With stock markets now focused on the US contest, declines in Asia were followed by early declines in London, Paris and Frankfurt, where some internal problems resurfaced.

Updated German GDP figures showed the eurozone powerhouse slipped into recession in the early months of the year, despite early readings suggesting otherwise, while UK bond markets remained reeling from the inflationary shock on Wednesday.

MSCI’s broadest index of global stocks was down 0.2%, but after two days of selling, it was enough to keep sentiment subdued and propel safe-havens like the dollar to two-month highs.

Washington’s short-term borrowing costs topped 7% after Fitch downgraded the US credit rating late on Wednesday, while the yuan’s slide to six-month lows pointed to its economy returning to wobble

“Unfortunately, markets now face a plethora of risks”said Ben Jones of Invesco.

Still, Wall Street S&P 500 futures were pointing higher after a spectacular earnings forecast for the world’s most valuable publicly traded chip company, Nvidia, whose shares were up 24% in premarket trading.

Asia was divided overnight, with Japan struggling to advance and Hong Kong plunging nearly 2% to its lowest level of the year, amid renewed geopolitical concerns surrounding Chinese tech giants like Tencent. , Alibaba , AIA and Meituan, which are listed there.

Back in Washington, negotiators for President Joe Biden and Republican Congressman Kevin McCarthy held what both sides called productive debt ceiling talks. However, with no resolution in sight, traders remained wary of a possible default in early June.

A downgrade could affect the price of trillions of dollars in Treasury debt securities. Fitch’s move revived memories of 2011, when S&P downgraded the US rating, triggering a cascade of downgrades as well as a stock market selloff.

In the foreign exchange market, the dollar index gained 0.2%, up to a new two-month maximum of 104.16 units, while the euro did the same in the opposite direction after the German data.

Brent crude subtracted $1, at $77.5 per barrel, while benchmark European gas prices touched lows of almost two years and more than 90% since the record peaks caused by the invasion -or special military operation- of Russia in Ukraine.

By Marc Jones, from Reuters agency

Source: Ambito

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