Global stock markets recovered some of their recent losses after US politicians reassured investors that a deal to raise the government debt ceiling was close to being settled
If lawmakers in Washington DC cannot find a way to allow the country to increase its borrowing levels the US risks defaulting on its own debt – with potentially disastrous consequences for the global economy. President Biden and his Republican counterpart in Congress, House of Representatives speaker Kevin McCarthy, have been at loggerheads since the start of the month. Republicans have been unwilling to authorise additional borrowing unless Democrats agree to reverse some of their recent tax policies. However, after a jittery start to the week, both Biden and McCarthy told reporters on Thursday that talks between the two were progressing well, leading to major gains on global markets.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.7% up for the week so far, with the S&P 500 adding 1.8%. While the breakthrough on debt ceiling negotiations was the biggest story in the US, investors remained mindful of economic data. Retail sales for April were weaker than expected, although there was a surprise increase in factory output. Meanwhile, the latest unemployment figures showed an unexpected fall in jobless claims, suggesting the US labour market remains tight – a sign that the Federal Reserve may need to raise rates again to bring inflation under control.
In the UK, the FTSE 100 closed on Thursday 0.2% down for the week so far, with the latest falls in oil and commodities prices dragging London’s energy and mining stocks lower. Bank of England governor, Andrew Bailey, warned that Britain could be entering a “wage-price spiral” where rising salaries feed through into renewed increases in inflation, while UK-based car manufacturers said they could be forced to leave the country if the government refuses to water down Brexit-related import rules on electric vehicle parts.
In Frankfurt, the DAX index ended Thursday’s session up 1.6% for the week, while France’s CAC 40 gained 0.4%. European shares were buoyed by signs that the US debt ceiling saga could soon be at an end, while the European Union revised up its forecasts for the bloc’s growth in 2023. Officials said that member states had managed the fallout of Russia’s invasion of Ukraine – and the conflict’s impact on energy markets in particular – better than expected.
In Asia, the Hang Seng index in Hong Kong rose 0.5%, with gains limited by fresh concerns about the pace of China’s economic recovery. New data showed the country’s industrial activity in April came in below expectations, with retail sales also weak. Meanwhile, Japan’s Nikkei 225 index of leading shares continued its 2023 surge with a 4% gain, taking the market close to 30-year highs. Japan’s own growth figures were surprisingly strong, while investors also welcomed news that a major Tokyo-listed electronics company was planning a demerger that could potentially unlock additional value for shareholders.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 18 May 2023.