Concern over US default danger grips international markets as talks resume

By Chris Prentice and Nell Mackenzie

NEW YORK/LONDON (Reuters) -Unease over how U.S. debt ceiling negotiations will pan out gripped international markets on Monday, with equities blended and U.S. treasury yields modestly larger.

Oil futures have been larger as demand optimism offset the default issues. Gold costs retreated following hawkish feedback from a Federal Reserve official.

U.S. President Joe Biden and Home Republican Speaker Kevin McCarthy will meet to debate the debt ceiling on Monday, lower than two weeks earlier than a June 1 deadline after which Treasury expects the federal authorities will battle to pay its money owed.

A failure to elevate the debt ceiling would set off a default, seemingly sparking chaos in monetary markets and a spike in rates of interest.

“We anticipate a decision to be reached earlier than the deadline, however anticipate unexpected developments all through the method,” mentioned Bruno Schneller, a managing director at INVICO Asset Administration.

Broader financial indicators in a number of international locations point out a slowdown, he mentioned.

The MSCI world fairness index, which tracks shares in 49 nations, gained 0.2% by 10:22 a.m. EDT (1422 GMT).

The Dow Jones Industrial Common fell 102.69 factors, or 0.31%, to 33,324.12, the gained 3.14 factors, or 0.07%, to 4,195.12 and the gained 51.51 factors, or 0.41%, to 12,709.41.

Europe’s STOXX 600 index fell 1.39%, whereas Europe’s broad FTSEurofirst 300 index retreated 0.13%.

Jonathan Pingle, U.S. chief economist at UBS, mentioned the Japanese yen and gold have been greatest positioned to profit from any U.S. default.

“Solely a one-month lengthy deadlock publish the X-date is prone to trigger a tightening of financing circumstances sharp sufficient that it causes the greenback to rally strongly,” mentioned Pingle.

CHIP BAN

Asian share rose after China on Sunday barred U.S. agency Micron from promoting reminiscence chips to key home industries over safety issues.

The ban helped shares of Micron’s rivals in China and elsewhere, that are prone to profit as mainland corporations search reminiscence merchandise from different sources.

Nevertheless, market jitters concerning the U.S. debt ceiling remained pervasive.

On Friday, as negotiations reached an deadlock, Federal Reserve Chairman Jerome Powell mentioned charges may not must rise as a lot given the tighter credit score circumstances from the banking disaster.

On Monday, Minneapolis Federal Reserve President Neel Kashkari mentioned it was a “shut name” whether or not he would vote to boost rates of interest or pause the central financial institution’s tightening cycle when it meets subsequent month.

Gold costs fell 0.35% to $1,969.70 an oz.

Futures are pricing in near a 90% likelihood that the Fed will preserve charges unchanged at its subsequent assembly in June, and a complete of just about 50 foundation factors of cuts by the tip of the yr.

The yield on benchmark 10-year Treasury notes traded at 3.6976% in contrast with Friday’s shut of three.692%. The 2-year yield, which rises with merchants’ expectations of upper Fed fund charges, touched 4.3048% in contrast with earlier shut of 4.289%.

The greenback index, which tracks it in opposition to a basket of main currencies, was up at 103.25, however nonetheless off final week’s two-month excessive.

The euro was flat in opposition to the greenback at $1.0808.

In Asis, China stored its key lending charges unchanged on Monday whilst an financial restoration disenchanted. Merchants have been additionally digesting the implications of the Group of Seven’s “de-risk, not decouple” method to China and provide chains that the group flagged at its summit.

MSCI’s broadest index of Asia-Pacific shares exterior Japan have been up 0.6%.

U.S. crude ticked up 0.28% to $71.75 a barrel. Brent crude rose to $75.67 per barrel.

The Fed will launch minutes of its Could assembly on Wednesday. U.S. private consumption expenditure inflation information is predicted on Friday.

(Reporting by Chris Prentice, Nell Mackenzie, Stella Qiu and Rae Wee; Graphics by Kripa Jayaram and Lewis Krauskopf; Modifying by Sam Holmes, Muralikumar Anantharaman and Jane Merriman)


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