European stock markets tumble on concerns over US debt ceiling

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European stocks fell on Wednesday, with the expiry of the US debt ceiling weighing on investors as politicians in Washington failed to agree on a deal to raise the nation’s spending limit.

Europe’s regional Stoxx 600 fell 0.7% and France’s CAC 40 lost 0.6% in the first hour of trading.

The moves come after US President Joe Biden and four members of Congress were on Tuesday unable conclude a deal to raise the national debt ceiling and avoid an unprecedented government default.

Officials like the Treasury Secretary Janet Yellen they warned the US could default on its debt as early as next month if lawmakers fail to reach a compromise, with the looming deadline prompting Biden to abort his impending overseas trip.

Yet US futures were higher, with contracts that track Wall Street’s benchmark S&P 500 up 0.2%, while those that track the tech-heavy Nasdaq 100 gained 0.1% before the open. New York.

“Markets will start pricing in debt ceiling concerns around mid-June as it becomes apparent that negotiations are likely to drag on to the last minute and political incidents could ensue,” said Mohit Kumar, chief financial economist for Europe at Jefferies.

Government bonds also stabilized from previous sessions, with the yield on interest-rate sensitive two-year Treasuries rising 0.01 percentage point to 4.08%. The yield on the 10-year benchmark note fell 0.02 percentage point to 3.53%. Bond yields rise when prices fall.

The dollar index, which tracks the currency against a basket of six pars, gained 0.3%.

Meanwhile, traders in Europe await the release of the Eurozone’s final harmonized consumer price index for April, with analysts expecting the annual rate to rise slightly to 7%, up from 6.9% in March.

However, policymakers will welcome the expected decline in core inflation, which excludes food and energy costs and offers a better indicator of underlying price pressures.

The European Central Bank slowed the pace of its rate hikes this month, raising the deposit rate by a quarter of a percentage point at 3.25 percent, but said it had more ground to cover.

Asian stocks trailed US markets, with China’s CSI 300 index down 0.5% and Hong Kong’s Hang Seng index down 2.3%.

Japan’s Topix bucked the trend, rising 0.3% on better-than-expected gross domestic product data.

Japan’s economy grew at an annualized rate of 1.6% from January to March from the previous quarter, beating economists’ expectations of a 0.7% increase on the back of a post-Covid recovery in government spending. families.