Optimism about the possibility of a deal to raise the United States government debt ceiling has fizzled out, leading to renewed losses on global stock markets in recent days
Despite the positive noises made last week by both President Joe Biden and his Republican counterpart, House of Representatives speaker Kevin McCarthy, the two sides have remained unable to reach the agreement necessary for the US to avoid a potentially calamitous default. According to some estimates this could arrive as early as 1 June. Sentiment was not helped by the latest data from Europe which suggests that rising interest rates have started to dampen business activity in some of the eurozone’s largest economies.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 2% down for the week so far, with the S&P 500 falling 1%. Lack of progress on debt ceiling talks led credit ratings agencies to warn of a potential downgrade for the US government, although investors were encouraged by more hopeful comments from negotiators late on Thursday. Losses were also offset to some degree by strong trading results from a major US semiconductor manufacturer on Wednesday.
In the UK, the FTSE 100 closed on Thursday 2.4% down for the week so far. Share prices in London were hit hard by nervousness around the US debt ceiling as well as the latest inflation data in Britain. While the headline Consumer Price Index figure for April showed a drop in March, the underlying cost of essentials such as food continues to surge. Speculation has grown that the Bank of England may need to raise interest rates as high as 5% in the coming months as a result. Energy companies were buoyed on Wednesday by reports that OPEC may be considering a cut in oil production, which would drive crude oil prices higher. However, Russian officials responded by saying they would block such a move.
In Frankfurt, the DAX index ended Thursday’s session down 3% for the week, while France’s CAC 40 lost 3.5%. Recent data showed that business growth across the eurozone has slowed more rapidly than expected this month, with expansion in France down to its slowest pace in four months. Figures for the first quarter of 2023 indicated that Germany had entered recession following the downturn in the final three months of last year.
In Asia, the Hang Seng index in Hong Kong dipped 3.6% largely due to the intensification of the dispute between China and the US over access to technology. At the start of the week, Chinese authorities announced a ban on supplies of microchips from a major American manufacturer on national security grounds, prompting politicians in the US to call for retaliation from the Biden administration. Japan’s Nikkei 225 index of leading shares, meanwhile, ended Thursday level for the week so far. Tokyo-listed tech and manufacturing firms are set to benefit from an easing in semiconductor supply chain issues, while the Japanese government raised its outlook for growth in 2023.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 25 May 2023.