US stocks fell while short-dated Treasuries held on to losses after another round of debt-ceiling talks ended without a deal.
(Bloomberg) — US stocks fell while short-dated Treasuries held on to losses after another round of debt-ceiling talks ended without a deal.
Investors have been demanding higher premiums to hold US debt, especially those at the highest risk of default, with little time left for politicians to find an agreement. Yields on securities maturing June 8 are yielding above 5.8% compared to bills maturing May 30 that are yielding less than 3%.
The S&P 500 fell 0.3%, led lower by financials and consumer staples. Lowe’s Cos. cut its sales outlook, citing a slowdown in consumer spending. Broadcom Inc. signed a multibillion-dollar deal with Apple Inc. to develop 5G radio frequency components. And a rout in luxury-good makers including Hermes International wiped out more than $30 billion in value.
President Joe Biden and House Speaker Kevin McCarthy called their discussions on Monday productive, but an agreement remains elusive. That left traders on tenterhooks with only a few days left before June 1, when Treasury Secretary Janet Yellen said her department may run out of cash. Any deal would have to be approved by Congress before then.
“I think a default is very unlikely as I don’t think either Democrats and Republicans want it, but we could get close to it and the deadline,” Fabiana Fedeli, chief investment officer for equities and multi-asset at M&G Plc, said on Bloomberg TV. “The closer we get to the deadline the more nervous clients will get.”
Meanwhile, Invesco Chief Global Market Strategist Kristina Hooper said she sees a brief technical default as a real possibility, which is more likely to be reflected in bonds, rather than stocks.
“The negotiating parties have gotten more pessimistic,” she said. “And it suggests to me that we’ll see more market turbulence in coming days.”
Read more: US Default Scenarios Span From Localized Pain to Dimon’s ‘Panic’
In economic news, US new-home sales unexpectedly rose to a more than one-year high. US business activity also grew in May by the most in over a year.
In Europe, stocks were weaker after data showed manufacturing activity in the region shrank at the fastest pace since the pandemic three years ago.
And in Asia, Tokyo’s Topix index fell for the first time in eight days, with semiconductor stocks turning lower on news that Japan’s tighter export controls will take effect July 23.
Key events this week:
- Dallas Fed President Lorie Logan speaks, Tuesday
- Fed issues minutes of May 2-3 policy meeting, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US initial jobless claims, GDP, Thursday
- Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
- Tokyo CPI, Friday
- US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.3% as of 10:54 a.m. New York time
- The Nasdaq 100 fell 0.4%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell 0.6%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.3% to $1.0779
- The British pound fell 0.1% to $1.2421
- The Japanese yen was little changed at 138.57 per dollar
Cryptocurrencies
- Bitcoin rose 1.6% to $27,319.35
- Ether rose 2% to $1,853.85
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.73%
- Germany’s 10-year yield advanced one basis point to 2.47%
- Britain’s 10-year yield advanced 10 basis points to 4.17%
Commodities
- West Texas Intermediate crude rose 1.4% to $73.08 a barrel
- Gold futures fell 0.4% to $1,988.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Ishika Mookerjee and Allegra Catelli.
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