US stocks fall as investors await debt ceiling talks

Wall Street stocks traded cautiously on Tuesday as traders looked for signs of an unwinding of the impasse in Washington over the US debt ceiling.

The benchmark S&P 500 fell 0.3% in New York, reversing gains from the previous session, while the Nasdaq Composite was up 0.2%.

Trading was overshadowed by the possibility that US President Joe Biden and Republican House Speaker Kevin McCarthy could not agree on a deal to raise 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 of there being an agreement today,” said Nadège Dufossé, head of asset allocation at Candriam, an asset manager. “Ultimately, no deal means higher rates and a negative impact on equities,” she noted.

The yield on the interest rate sensitive 2-year Treasury bill climbed 0.1 percentage point to 4.1%, while the yield on the 10-year Treasury bill climbed 0.05 percentage point to 3.98%. Bond yields rise when prices fall.

Yields on one-month Treasury bills fell 0.07 percentage point on Tuesday after hitting 5.53% on Monday, their highest level since before the 2007-2008 financial crisis.

“It’s clear that investors are still nervous about the matter,” said Deutsche Bank strategist Jim Reid. “This is a big kink at the front of the yield curve, centered around the one-month mark, which is when fears of a potential default are at their highest,” he added.

The dollar lost 0.2% against a basket of six other currencies.

The moves come as data from the Census Bureau showed U.S. retail sales rose 0.4% in April, swinging from the previous month but coming in well below the 0.8% increase expected by economists.

“For markets, the retail sales data provides an added pop of color to what appears to be a picture of a cooling US economy,” said Simon Harvey, head of forex analytics at Monex Europe.

However, separate data from the Federal Reserve indicated that industrial production rose 0.5% in the month to April, far exceeding economists’ expectations for a unchanged reading.

In Europe, the regional Stoxx 600 closed down 0.4%, while Germany’s Dax index lost 0.1% and France’s Cac 40 lost 0.2%.

The moves came after Germany’s Zew gauge – a gauge of economic sentiment for the euro zone’s largest economy – plunged from 4.1 to minus 10.7 in the month to May, its lowest level this week. ‘year. The reading was well below the forecast of economists polled by Reuters.

“It seems that 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 stock markets were subdued, with China’s CSI index slipping 0.5% after official data showed the world’s second-largest economy was not regaining momentum, despite its reopening after a long COVID-19 stop.

Hong Kong’s Hang Seng was unchanged, while Japan’s Topix gained 0.6% to its highest level in nearly 33 years as improvements in corporate governance made Tokyo more attractive to foreign investors.