Stocks waver as US debt talks drag on

BLOOMBERG

Global markets were mixed on Tuesday, with US stock futures trading in a tight range ahead of debt-ceiling talks. A standoff over whether to raise the federal debt limit is sidelining many investors as they wait for a breakthrough in Washington. In Europe, Vodafone Group Plc shares sank on weak earnings and Telecom Italia SpA fell after a report that Italy’s state lender will drop its offer for the carrier’s landline network. More broadly the region’s Stoxx Europe 600 index was little changed.
“We are all looking to Congress and the White House to see how the US debt ceiling discussions are moving ahead,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “Now that we have sufficient clarity on central bank policy and are close to the rate hike cycle peak, investors are looking for clarity on the political front before coming earnings season.”
Treasury Secretary Janet Yellen warned that the US is already paying a price for its failure to raise the federal debt limit and reiterated her department may run out of cash as soon as June 1.
Still, most investors say they expect politicians to reach a last-minute deal to stave off default. Yields on policy-sensitive two-year Treasuries fell three basis points, trading below 4%.
Appetite for risk-taking has been sapped by a panoply of factors. The US economy is slowing while inflation is still running hot, and a run of regional bank failures has stirred fears of a credit crunch. In Bank of America Corp’s latest survey 65% of participants said the economy will weaken, and reported bigger allocations to havens such as cash and big tech.
“We believe Japanese stocks still have further to go,” Fabiana Fedeli, chief investment officer for equities and multi assets at M&G Plc, said on Bloomberg Television.
Chinese stocks fell in Shanghai and Shenzhen after official data showed industrial output, retail sales and fixed investment all missed estimates in April. Analysts forecast more policy support later this year.
“Markets are still absorbing some of this morning’s earnings reports, but today’s China data was a little disappointing which is prompting some weakness in luxury retail and basic resources,” said Michael Hewson, chief market analyst at CMC Markets UK.
The dollar retreated against most Group of 10 peers. Crude prices held a modest gain after the International Energy Agency (IEA) said oil demand will climb more strongly than previously estimated this year.