[1/3] Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 22, 2023. REUTERS/Brendan McDermid
- European equities, US equities mixed
- Negotiations on the US debt ceiling resume after deadlock
- Gold prices and US Treasury yields are rising
- G7 wants to reduce China’s trade dependency, Beijing partially blocks Micron
SYDNEY, May 22 (Reuters) – Uncertainty over the outcome of US debt ceiling negotiations gripped global markets on Monday, with equities mixed and US Treasury yields rising slightly.
Oil futures were higher as demand optimism offset default concerns. Gold prices fell after hawkish comments from a Federal Reserve official.
U.S. President Joe Biden and Republican House Speaker Kevin McCarthy are set to meet Monday to discuss the debt ceiling, less than two weeks before the June 1 deadline, after which the Treasury Department expects the federal government to meet will have difficulty paying off their debts.
Failure to raise the debt ceiling would trigger a default, likely leading to chaos in financial markets and a rise in interest rates.
“We assume that a solution will be found before the deadline, but expect unforeseen developments throughout the process,” said Bruno Schneller, Managing Director at INVICO Asset Management.
Broader economic indicators in several countries are pointing to a slowdown, he said.
The MSCI World Equity Index (.MIWD00000PUS), which tracks equities from 49 countries, was up 0.2% as of 10:22 am EDT (1422 GMT).
The Dow Jones Industrial Average (.DJI) fell 102.69 points, or 0.31%, to 33,324.12, the (.SPX) rose 3.14 points, or 0.07%, to 4,195.12 and the (.IXIC ) gained 51.51 points, or 0.41%, to 12,709.41.
The European STOXX 600 index (.STOXX) fell 1.39%, while the broad European FTSEurofirst 300 index (.FTEU3) fell 0.13%.
Jonathan Pingle, chief US economist at UBS, said the Japanese yen and gold are best placed to benefit from a US default.
“Only a month-long standstill after that
CHIP BAN
Asian stocks rose after China on Sunday banned US company Micron from selling memory chips to key domestic industries over security concerns.
The ban benefited shares of Micron’s competitors in China and elsewhere, which are likely to benefit as mainland companies look to memory products from other sources.
However, market jitters over the US debt ceiling remained pervasive.
On Friday, as negotiations reached an impasse, Federal Reserve Chair Jerome Powell said interest rates might not need to be raised as much given tighter credit conditions stemming from the banking crisis.
On Monday, Minneapolis Federal Reserve Chairman Neel Kashkari said it was a “close call” whether to vote to raise interest rates at next month’s meeting or pause the central bank’s tightening cycle.
Gold prices fell 0.35% to $1,969.70 an ounce.
Futures are pricing in a nearly 90% chance that the Fed will leave rates unchanged at its next meeting in June and cut nearly 50 basis points in total by year-end.
The benchmark 10-year Treasury bond yield traded at 3.6976% compared to Friday’s close of 3.692%. The two-year yield, which rises as traders expect higher Fed Fund rates, hit 4.3048% compared to a previous close of 4.289%.
The dollar index, which tracks it against a basket of major currencies, rose to 103.25 but was still below last week’s two-month high.
The euro was unchanged against the dollar at $1.0808.
In Asia, China left interest rates unchanged on Monday despite disappointing economic recovery. Traders also digested the implications of the Group of Seven’s “reduce risk, not decouple” approach to China and supply chains that the group addressed at its summit.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) rose 0.6%.
US crude rose 0.28% to $71.75 a barrel. Brent crude rose to $75.67 a barrel.
The Fed will release minutes from its May meeting on Wednesday. US personal consumption spending inflation data is expected on Friday.
Reporting by Stella Qiu. Edited by Sam Holmes
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