Stock traders remained mostly sidelined just hours away from the resumption of Washington negotiations on whether to raise the US debt ceiling and prevent a historic default.
(Bloomberg) — Stock traders remained mostly sidelined just hours away from the resumption of Washington negotiations on whether to raise the US debt ceiling and prevent a historic default.
It was another lackluster session for the equity market, with the S&P 500 falling for the third time in four days and churning near the 4,100 level. Home Depot Inc. slid after cutting its outlook, a sign that economic uncertainty is leading to a pullback in home improvement spending. Tech megacaps outperformed once again.
The bond market was under pressure with Pfizer Inc. kicking off a potential jumbo debt deal. Yields rose across the US curve, with the rate on 30-year notes climbing to around 3.9% — the highest since the banking turmoil that erupted in early March.
Treasury Secretary Janet Yellen warned that “time is running out” to avert an economic catastrophe from failing to raise the debt ceiling, speaking before Tuesday’s meeting between President Joe Biden and congressional leaders. On Tuesday morning, Speaker Kevin McCarthy said there had been “no progress” in talks overnight ahead of the 3 p.m. gathering.
“Since both sides know what is at stake, default is improbable,” said Seema Shah, chief global strategist at Principal Asset Management. “However, every day closer to the Treasury’s June 1 deadline without a resolution will likely elevate volatility in markets, trim demand for US risk assets, and even expedite recession.”
Read: ‘Discretionary Recession’ Creeps Across Retailing: Surveillance
The mood among global fund managers soured further in May, with investors flocking to cash amid concerns that a recession and credit crunch are looming, according to Bank of America Corp.’s latest survey.
The sentiment among fund managers deteriorated to the most bearish this year, with 65% of survey participants now expecting a weaker economy, BofA’s poll showed. At the same time, almost two thirds of investors see a soft landing as the most likely scenario for global economic growth and expect only a small contraction in earnings.
Federal Reserve Bank of Cleveland President Loretta Mester said the central bank is unable to do much about slow long-term economic growth, but can “do its part” by curbing prices. Her Richmond counterpart Thomas Barkin said he was still looking to be convinced that inflation has been defeated and that he’d support raising rates further if needed.
US retail sales increased in April, suggesting consumer spending is holding up in the face of economic headwinds including inflation and high borrowing costs.
“There is nothing in this series that will take a June rate hike off the table — although we are doubtful one comes to fruition,” said Ian Lyngen at BMO Capital Markets. “Instead, the Fed will err on the side of retaining terminal for as long as possible as economic headwinds continue to mount, but remain contained for the time being.”
Key events this week:
- Eurozone CPI, Wednesday
- BOE Governor Andrew Bailey delivers keynote speech, Wednesday
- US housing starts, Wednesday
- US initial jobless claims, Conference Board leading index, existing home sales, Thursday
- Japan CPI, Friday
- ECB President Christine Lagarde participates in panel at Brazil central bank conference, Friday
- New York Fed’s John Williams speaks at monetary policy research conference in Washington; Fed Chair Jerome Powell and former chair Ben Bernanke to take part in panel discussion, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.3% as of 12:38 p.m. New York time
- The Nasdaq 100 rose 0.5%
- The Dow Jones Industrial Average fell 0.6%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.0865
- The British pound fell 0.4% to $1.2479
- The Japanese yen fell 0.4% to 136.61 per dollar
Cryptocurrencies
- Bitcoin fell 1.2% to $27,013.75
- Ether fell 0.4% to $1,819.69
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.56%
- Germany’s 10-year yield advanced four basis points to 2.35%
- Britain’s 10-year yield was little changed at 3.82%
Commodities
- West Texas Intermediate crude fell 0.5% to $70.77 a barrel
- Gold futures fell 1.4% to $1,995 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee and Carly Wanna.
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