European stock markets fall on US debt ceiling concerns

European shares fell on Wednesday as the US debt ceiling deadline weighed on investors as policymakers in Washington failed to agree on a deal to raise the country’s spending limit.

Europe’s sectoral Stoxx 600 fell 0.7 percent in the first hour of trading and France’s CAC 40 fell 0.6 percent.

The move comes after US President Joe Biden and four members of Congress were unable to reach a deal on Tuesday to raise the country’s debt ceiling and prevent an unprecedented government default.

Officials such as Treasury Secretary Janet Yellen have warned that the US could default on its debt as early as next month if lawmakers fail to reach an agreement, prompting Biden to cut short his upcoming foreign trip. can be done.

Yet US futures were up, with contracts tracking Wall Street’s benchmark S&P 500 rising 0.2 percent, while those tracking the tech-heavy Nasdaq 100 advanced 0.1 percent ahead of the New York open.

Mohit Kumar, chief financial economist for Europe at Jefferies, said: “Markets will begin to price in debt ceiling concerns by mid-June, when it becomes clear that talks are likely to drag on until the last minute and political mishaps could occur.” Are.”

Government bonds also held steady from the previous sessions, with the yield on interest rate sensitive two-year Treasury notes rising 0.01 percentage point to 4.08 per cent. The yield on the benchmark 10-year note fell 0.02 percentage points to 3.53 per cent. Bond yields rise when prices fall.

The dollar index, which tracks the currency against a basket of six peers, rose 0.3 percent.

Meanwhile, traders in Europe await the release of the eurozone’s final harmonized index of consumer prices for April, with analysts forecasting a modest rise in the annual rate to 7 percent from 6.9 percent in March.

However, policymakers will welcome the projected decline in core inflation, which excludes food and energy costs and provides a better gauge of underlying price pressures.

The European Central Bank slowed the pace of its rate hike this month, raising its deposit rate by a quarter percentage point to 3.25 percent, but said it had more ground to cover.

Asian shares followed US markets, with China’s CSI 300 falling 0.5 percent and Hong Kong’s Hang Seng index falling 2.3 percent.

Topix Japan bucked the trend with a gain of 0.3 percent after stronger-than-expected GDP data.

Japan’s economy grew at an annual rate of 1.6 percent in the January to March quarter, ahead of the 0.7 percent gain economists had expected on the back of a post-Covid recovery in household spending.