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European and Asian equities slipped on Tuesday as investors worried about a possible US debt default, after politicians failed to strike a deal on Monday.
The Stoxx Europe 600 index of sectors as a whole opened down 0.3 per cent, as did Germany’s DAX and France’s CAC 40. London’s FTSE 100 fell 0.2 percent.
In Asia, China’s CSI 300 fell 1.4 percent, with financial and tech stocks among the worst performers. Japan’s Topix fell 0.7 per cent and Hong Kong’s Hang Seng index fell 1.3 per cent, bringing its losses so far this year to 3.5 per cent.
The contract tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 both advanced 0.1 percent ahead of the New York open.
The move comes after President Joe Biden and Republican House Speaker Kevin McCarthy failed to strike a deal on Monday evening to prevent the US government from running out of money by the end of the month.
Although both politicians described the meeting as “productive”, their deadline is fast approaching: Treasury Secretary Janet Yellen has said that it “will be unable to meet all of the government’s obligations by early June, and Possibly by June 1”.
With “a lot of work to do” before the so-called X-date, when the government runs out of money, sometime next month, analysts at JP Morgan said: Might be a bumper ride.”
Mike Zigmont, head of trading at Harvest Volatility Management, said traders are in effect “twiddling their thumbs” until either an agreement is reached or the world’s largest economy defaults.
On Monday, an AI-generated image of an explosion near the Pentagon, later confirmed to be a fake, spread quickly on social media and briefly knocked the S&P 500.
Zygmont said, “Whether today’s fake story has been exploited for profit by its creators” is unknown. “(But) this is a big change. Too many algorithmic traders are using news to take quick action. Those are the groups that are going to be most harmed by this new reality.
Investors await the latest US Purchasing Managers’ Index on Tuesday, which tracks monthly changes in manufacturing and services activity and measures how high interest rates are impacting the economy.
In the commodity markets, Brent crude prices were steady at $75.99 per barrel. A measure of the dollar’s strength against a basket of six other currencies rose 0.1 percent.
