Global stock markets weaken after Fitch warns about US debt ceiling

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Global stocks weakened and short-term US Treasury yields hit record highs on Thursday as policymakers in Washington struggled to get a debt ceiling deal and avoid an unprecedented government default.

Traders’ concerns were reinforced after Fitch Ratings, the rating agency, signaled it could downgrade the US credit rating and put its triple-A rating on negative watch.

Equity markets across Europe remained weak. The FTSE 100 lost 0.3% and the Paris Cac 40 fell 0.5%. The pan-European Stoxx 600 fell 0.1%, supported by gains from later chipmakers explosive earnings from Nvidia. Shares of the US group soared as much as 29% in post-sale trading.

Fitch last put the US on negative watch during debt ceiling negotiations in Washington in October 2013, two days before the so-called X date that year when the government was expected to run out of cash .

“We believe there are increased risks that the debt limit will not be lifted or suspended before date X and consequently that the government could start to miss payments on some of its obligations,” the rating agency said.

Yields on Treasuries due next month – around the expected date the government could run out of cash – hit 6.03%, its highest point in 20 years, in morning trading in London on Thursday.

The two-year Treasury yield rose 0.05 percentage point to 4.39%, while the 10-year Treasury yield rose 0.03 percentage point to 3.74%. Bond yields rise when prices fall.

Contracts tracking Wall Street’s S&P 500 benchmark were up 0.5% and those tracking the Nasdaq 100 were up 1.5% before the New York open.

European chipmakers have soared after Nvidia’s quarterly earnings far exceeded analysts’ expectations, on the back of growing demand for chips used in generative AI systems.

ASML, Europe’s largest technology company, rose 6% and BE Semiconductor added 9%. In Asia, Taiwan Semiconductor Manufacturing gained 3.4% and South Korea’s SK Hynix climbed 5.9%.

Germany’s Dax index lost 0.5% as official data showed it is the largest economy in the eurozone decreased for the second consecutive quarter at the beginning of the year.

In Asia, Hong Kong’s Hang Seng index lost 2%, while Australia’s S&P/ASX 200 index fell 1.1% and China’s benchmark CSI 300 index fell 0.2%. Japan’s Topix fell 0.3%.