© Reuters. FILE PHOTO: Passers-by walk past an electronic board displaying Japan’s Nikkei average and stock prices in front of a brokerage firm, in Tokyo, Japan March 20, 2023. REUTERS/Androniki Christodoulou
By Chris Prentice and Alun John
NEW YORK/LONDON (Reuters) – Global equities fell on Tuesday as US debt ceiling talks continued without resolution and one-month US Treasury yields hit a record high.
Rising yields and a stronger US dollar put pressure on prices. Oil prices continued their rally.
President Joe Biden and House Speaker Kevin McCarthy on Monday failed to agree on how to raise the US government’s $31.4 trillion debt ceiling just 10 days before a potential default.
But both sides stressed the need to avoid a default with a bipartisan deal and said they would keep talking, so investors are cautious about making big bets.
“The best solution is a negotiated solution that raises the debt limit,” said Samy Chaar, chief economist at Lombard Odier. Still, he added that some investors are pondering the market implications of “a compendium of less dramatic solutions, which may or may not be entirely legal, that could be used to avoid an actual default.”
The MSCI World Equity Index, which tracks equities from 49 countries, is down 0.38% as of 10:47 am EDT (1447 GMT).
The fell 10.75 points or 0.03% to 33,275.83, the lost 11.54 points or 0.28% to 4,181.09 and the lost 25.56 points or 0.20% to 12,695.22.
The index rose 0.39%. Activity data showed that business growth in the euro zone remained resilient, albeit slightly weaker than expected.
Europe’s broad index fell 10.68 points, or 0.56%.
Julius Baer shares fell 7.39% after the Swiss money manager reported modest cash inflows in the first four months, disappointing investors who had expected it to benefit Swiss credit (SIX:)’s problems.
“Without real action (on the debt ceiling front), the Fed’s hawkish statements had some impact on markets,” said Vishnu Varathan, an economist at Mizuho, adding that some pressure on U.S. Treasuries is also affecting the dollar have supported.
Minneapolis Federal Reserve Chairman Neel Kashkari said Monday it was a “close call” whether to vote to hike rates again or pause at next month’s meeting, and St Louis said further rate hikes of 50 basis points were needed.
The comments caused traders to push back US interest rate cut expectations from July towards November or December, causing US 10- and 2-year Treasury yields to hit highs not seen since March.
The yield on the benchmark rose to 3.7341%, compared to Monday’s close of 3.719%. The two-year yield, which rises as traders expect higher Fed Fund rates, rose to 4.3823% from 4.322% previously.
Benchmark 10-year government bond yields hit 3.7550% on Tuesday, their highest since March 13, while two-year government bond yields rose around 7 basis points to as high as 4.4040%, also their highest since March.
The US dollar eased after hitting a six-month high of 138.91 yen.
“The continued reluctance (of the Bank of Japan) to tighten further in the near term, combined with a recent adjustment in US interest rates, has led to renewed bullish momentum (in the dollar versus the yen),” said Lee Hardman, senior currency analyst at MUFG in a morning note to customers.
The US dollar, which tracks the dollar against a basket of currencies from other major trading partners, rose to 103.48.
Prices fell 0.09% to $1,966.59 an ounce as higher yields hurt demand for the non-returning precious metal. [.N]
Oil prices rose in other commodity markets. Benchmark futures rose 1.18% to $76.89 a barrel and prices rose 1.4% to $73.05.
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