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Global stock markets weaken after Fitch warns on US debt ceiling

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

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

Stock markets around Europe remained soft. The FTSE 100 lost 0.3 per cent and the Cac 40 in Paris fell 0.5 per cent. The pan-European Stoxx 600 was down 0.1 per cent, supported by gains for chipmakers after blowout earnings from Nvidia. Shares in the US group rose as much as 29 per cent in after-market trading.

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

“We believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations,” the rating agency said.

Yields on Treasury bills maturing next month — around the expected date that the government could run out of money — hit 6.03 per cent, their highest point in 20 years, in early morning trading in London on Thursday.

The yield on two-year Treasuries rose 0.05 percentage points to 4.39 per cent, while the yield on 10-year notes was up 0.03 percentage points to 3.74 per cent. Bond yields rise as prices fall.

Contracts tracking Wall Street’s benchmark S&P 500 ticked up 0.5 per cent, and those tracking the Nasdaq 100 rose 1.5 per cent ahead of the New York open.

European chipmakers soared after Nvidia’s quarterly earnings far exceeded analyst expectations, on the back of soaring demand for chips used in generative artificial intelligence systems.

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

Germany’s Dax index lost 0.5 per cent, as official data showed that the eurozone’s largest economy shrank for the second consecutive quarter at the start of the year.

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

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