European shares weaken as US debt ceiling talks resume

European shares opened modestly lower on Monday as investors turned cautious on US debt ceiling talks balanced with the prospect that the Federal Reserve will soon halt its monetary tightening campaign.

Europe’s region-wide Stoxx 600 fell 0.1 percent, ending its rally last week, while France’s Cac 40 and Germany’s Dax each opened with losses of 0.2 percent.

Policymakers in Washington renewed talks to raise the US debt ceiling after a walkout on Friday, with President Joe Biden discussing the issue with Republican House Speaker Kevin McCarthy on Sunday.

Yet the looming deadline is weighing on markets, with concerns growing that an unprecedented government default in the summer could send global markets into turmoil and the US economy into recession.

The yield on interest rate-sensitive two-year Treasury notes fell 0.06 percentage points to 4.22 percent, while the yield on the benchmark 10-year note fell 0.04 percentage points to 3.65 percent. Bond yields rise when prices fall.

The dollar was flat against a basket of six other currencies.

Meanwhile, Fed Chair Jay Powell warned Friday that tighter debt conditions, caused by US regional banking turmoil, may limit how far the central bank can raise interest rates to bring inflation back to its 2 percent target. Can

US futures were weaker ahead of the New York open, with Wall Street’s benchmark S&P 500 shedding 0.1 per cent, while those tracking the tech-heavy Nasdaq 100 were flat.

Investors in Europe await the release of the Eurozone’s consumer confidence index on Monday. Analysts forecast the reading could come in at minus 17 percent in May, up slightly from the previous month, yet still in negative territory, indicating that overall sentiment remained weak as higher interest rates pushed prices higher. The pressure on the area remained.

Asian equities were flat, with Hong Kong’s Hang Seng index up 1.2 per cent, China’s CSI 300 up 0.6 per cent and Japan’s Topix up 0.7 per cent.

Shares in the Chinese semiconductor sector jumped after Beijing banned major infrastructure operators from buying products by US chipmaker Micron Technology, saying it posed a “serious network security risk”.

Semiconductor Manufacturing International, China’s top contract chip maker, rose 1.2 percent on Monday, while second-largest Hong Semiconductor added 0.9 percent in Hong Kong. The Hang Seng Tech index rose 2.3 per cent.