Stocks Slide as Sentiment on Global Outlook Sours: Markets Wrap

US stocks followed equities in Europe and Asia lower on Wednesday amid growing pessimism over the global outlook.

(Bloomberg) — US stocks followed equities in Europe and Asia lower on Wednesday amid growing pessimism over the global outlook.

The S&P 500 fell 0.9% as debt-limit talks hit a fresh impasse. Negotiators are still far apart on key issues, rising the risk of a US default and possible recession. 

In Europe, the Stoxx 600 slid the most in two months as UK inflation came in higher than expected. And in Asia, China’s benchmark CSI 300 erased all its gains for the year as developers’ debt woes and a new wave of Covid added to worries over growth.

Luxury stocks including LVMH and Gucci owner Kering SA extended losses. Chipmaker Analog Devices Inc. slid after a weak outlook on economic uncertainty. And Citigroup Inc. fell after abandoning plans to sell its Mexican unit Banamex.

Yields on short-dated Treasuries continued to push higher Wednesday, with investors demanding a higher premium on US debt with the highest risk of default. Treasury Secretary Janet Yellen said the US was likely to start missing debt payments as soon as June 1. As such, the yield on securities maturing June 6 pushed above 6.7% on Wednesday while those maturing May 30 are yielding around 3%.

“I’m starting to get the feeling that the Republicans don’t believe in Yellen’s X-date and think they have the upper hand,” said Benjamin Dietrich, a portfolio manager at Lazard Asset Management LLC. “I think the risk is for no short-term solution and the S&P breaking lower. Also, the China surprise index collapse should be bad for risk sentiment.”

Minutes later in the day from the Federal Reserve’s FOMC meeting in May are expected to reveal concern over credit conditions, which may prompt the US central bank to pause interest rate hikes in June. Policymakers have been walking a fine line, trying not to tip the economy into a recession with its rate hikes in an attempt to clamp back inflation. But if the US debt deal contains deep spending cuts or there is a default, economists project a US recession regardless. 

“We are pessimistic on the economic outlook,” said Michael Krautzberger, head of EMEA fundamental fixed income at BlackRock International. “The potential volatility coming from the debt ceiling discussion as we approach the deadline is one of those reasons. We don’t expect a technical default but we do expect a last minute deal.”

There has been a wall of worry investors have had to climb. JPMorgan Chase & Co.’s Chief Economist Michael Feroli said the odds of the US going past the so-called X date are 25% and rising.

However, Nomura’s Charlie McElligott said he believes a “positive outcome” is getting closer, with traders selling in waves of profit-taking ahead of the Treasury secretary’s deadline.

“Any relief rally on a debt-ceiling ‘deal’ headline into the start of next week then has the potential to act as a local top for stocks for a bit, with most of the ‘wall of worry’ blood already squeezed from the stone,” McElligott said.

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 S&P 500 fell 0.8% as of 12:15 p.m. New York time
  • The Nasdaq 100 fell 0.8%
  • The Dow Jones Industrial Average fell 0.8%
  • The MSCI World index fell 1%


  • The Bloomberg Dollar Spot Index rose 0.3%
  • The euro fell 0.2% to $1.0752
  • The British pound fell 0.4% to $1.2361
  • The Japanese yen fell 0.5% to 139.33 per dollar


  • Bitcoin fell 3.5% to $26,259.69
  • Ether fell 3.4% to $1,791.05


  • The yield on 10-year Treasuries advanced four basis points to 3.73%
  • Germany’s 10-year yield was little changed at 2.47%
  • Britain’s 10-year yield advanced six basis points to 4.21%


  • West Texas Intermediate crude rose 2% to $74.40 a barrel
  • Gold futures fell 0.6% to $1,979.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

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