Stocks Fall as Debt Limit, China Concerns Weigh: Markets Wrap

European equities retreated as worries over China’s economy, sticky inflation and the impasse in US debt-ceiling negotiations continued to weigh on sentiment.

(Bloomberg) — European equities retreated as worries over China’s economy, sticky inflation and the impasse in US debt-ceiling negotiations continued to weigh on sentiment.

LVMH and Cie Financiere Richemont SA were among the biggest drags on the Stoxx Europe 600 index, which headed for its largest drop in more than two months. Real estate and carmakers slumped amid fresh inflation concerns after data showed UK price increases remain much stronger than expected, while miners were deep in the red as copper and other industrial metals extended declines. Marks & Spencer Group Plc bucked the trend, jumping more than 10% after reporting results that beat analysts’ expectations.

The MSCI Asia Pacific Index was set for its lowest close in a week, with China’s benchmark stock index erasing all its gains for the year.

US equity futures pointed to another down day on Wall Street following losses of more than 1% for both the S&P 500 and Nasdaq 100 on Tuesday. Progress was limited in US debt negotiations on Tuesday, bringing the world’s biggest economy one step closer to a potential default. The two-year Treasury yield edged lower after eight straight days of gains, while the 10-year yield was flat.

Stocks are facing a number of headwinds, from concern over the US debt ceiling and China’s economic recovery to worries about persistent inflation that could keep interest rates higher for longer. Some investors are turning to wagers that markets are wrong in predicting the Federal Reserve will cut interest rates this year.

“Inflation continues to dominate – from boardrooms to shop floors – especially after stickier than expected UK inflation cemented bets of more BoE rate hikes ahead,” said Angeline Ong, a financial analyst at IG Group. To add to this, the lack of a US debt ceiling deal, a sputtering China rebound and escalating US-China chip tensions “point to more uncertainty ahead.”

Investors are 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 6 topped 6% Tuesday compared to bills maturing May 30 that are yielding about 2%. 

“The market is now at the point where it wants a little less conversation, a little more action,” Tony Sycamore, a market analyst at IG Australia, wrote in a note. “The continued impasse is now viewed as bad news and overnight generated a traditional risk-off response of lower equities and a higher US dollar.” 

On the commodities front, copper plunged below $8,000 a ton for the first time this year and iron ore extended a decline. Oil climbed after the Saudi energy minister warned short-sellers of pain ahead. 

Elsewhere, yields on New Zealand bonds fell and the currency dropped more than 1% after the Reserve Bank of New Zealand hiked interest rates to 5.5%, in line with projections, while suggesting that rate cuts may begin in late 2024. 

The last-hike signal by the RBNZ was a “big surprise,” said Jason Wong, a currency strategist at Bank of New Zealand. “Knee-jerk fall seems right as longs get stopped out,” he said of the kiwi.

Key events this week:

  • 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:


  • The Stoxx Europe 600 fell 1.5% as of 9:34 a.m. London time
  • S&P 500 futures fell 0.2%
  • Nasdaq 100 futures fell 0.2%
  • Futures on the Dow Jones Industrial Average fell 0.2%
  • The MSCI Asia Pacific Index fell 0.7%
  • The MSCI Emerging Markets Index fell 0.6%


  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $1.0781
  • The Japanese yen was little changed at 138.58 per dollar
  • The offshore yuan rose 0.2% to 7.0488 per dollar
  • The British pound was little changed at $1.2425


  • Bitcoin fell 1.8% to $26,736.98
  • Ether fell 2% to $1,816.88


  • The yield on 10-year Treasuries was little changed at 3.70%
  • Germany’s 10-year yield was little changed at 2.47%
  • Britain’s 10-year yield advanced 13 basis points to 4.29%


  • Brent crude rose 1.1% to $77.69 a barrel
  • Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Ruth Carson and Anchalee Worrachate.

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