Wall Street stocks traded cautiously on Tuesday, as policymakers met in Washington to negotiate a US debt ceiling agreement in a bid to avoid an unprecedented national default.
The benchmark S&P 500 was down 0.4 per cent, reversing its gains from the previous session, while the Nasdaq Composite fell 0.2 per cent at the New York open.
The moves come as US president Joe Biden is set to meet the Republican House Speaker Kevin McCarthy later in the day, to discuss increasing the nation’s spending limit weeks before it runs out of money. The US could default on its debt as early as next month if no deal is reached.
“It’s clear that investors are still nervous about the issue,” said Deutsche Bank strategist Jim Reid, noting that on Monday the yield on 1-month Treasury bills rose 0.1 percentage points to 5.53 per cent.
“That’s a big kink at the front of the yield curve centred around the 1-month mark, which is when fears of a potential default are at their highest,” he added.
The yield on interest rate-sensitive two-year Treasury notes rose 0.05 percentage points to 4.05 per cent, while the yield on the 10-year note was up 0.04 percentage points at 3.55 per cent. Bond yields rise when prices fall.
Meanwhile, new data from the Census Bureau showed that US retail sales rose 0.4 per cent in April, swinging up from the previous month but landing far below the 0.8 per cent rise forecasted by economists.
“For markets, the retail sales data provides an extra bit of colour to what is looking like a picture of a cooling US economy,” said Simon Harvey, head of FX analysis at Monex Europe.
In line with the data, shares of US home improvement retailer Home Depot fell almost 3 per cent, after the company warned that this year its profits will fall below expectations, due to bad weather in California as well as “broad-based pressure across the business”.
In Europe, the region-wide Stoxx 600 was down 0.4 per cent and France’s Cac 40 traded flat, recouping morning losses. Germany’s Dax index rose 0.2 per cent.
The moves came after Germany’s Zew indicator — a gauge of economic sentiment for the eurozone’s largest economy — plummeted from 4.1 to minus 10.7 in the month to May, its lowest level this year. The reading was well below the forecast of economists polled by Reuters.
“It seems as if 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.
Meanwhile, London’s FTSE 100 was down 0.4 per cent after official data showed that the UK unemployment rate increased 0.1 percentage points to 3.9 per cent, as the rising cost of living prompted more job leavers to return to the market.
Asian equity markets were subdued, with China’s CSI index posting a 0.5 per cent fall after official data showed that the world’s second-largest economy was failing to regain momentum, despite its reopening after a lengthy Covid-19 shutdown.
Hong Kong’s Hang Seng was flat, while Japan’s Topix gained 0.6 per cent and climbed to its highest level in almost 33 years as improvements in corporate governance make Tokyo more attractive to foreign investors.