European and Asian stocks fall on US debt ceiling

European and Asian stocks slipped on Tuesday as investors remained worried about a possible US debt default and politicians failed to reach an agreement on Monday.

The region-wide Stoxx Europe 600 index opened down 0.3 percent, as did Germany’s Dax and France’s Cac 40. London’s FTSE 100 fell 0.2 percent.

In Asia, China’s CSI 300 fell 1.4 percent, with financial and technology stocks the worst performers. Japan’s Topix fell 0.7 percent, and Hong Kong’s Hang Seng index fell 1.3 percent, bringing this year’s loss to 3.5 percent.

Contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 both rose 0.1 percent ahead of the New York open.

The moves come after President Joe Biden and Republican House Speaker Kevin McCarthy failed to reach an agreement Monday night to prevent the U.S. government from running out of money by the end of the month.

Although both politicians described the meeting as “productive,” the deadline is fast approaching: Treasury Secretary Janet Yellen said she “will not be able to continue to meet all of the government’s obligations until early June and probably as early as June 1.”

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“It may be a bumpier ride than markets are currently pricing in,” said analysts at JPMorgan, who have “a lot of work to do” before the so-called X-date, when the government money runs out, sometime next month.

Traders will effectively “move” until a deal is reached or the world’s largest economy collapses, said Mike Zigmont, head of trading at Harvest Volatility Management.

On Monday, a purported AI-generated image of an explosion near the Pentagon that later turned out to be fake quickly spread across social media and briefly knocked the S&P 500 down.

“It is not known whether today’s fake story has been exploited by its creators for profit,” Zigmont said. “[But] this is a big change. Many algorithmic traders use the news to act quickly. These groups will be the ones most harmed by this new reality.”

Investors await Tuesday’s latest U.S. purchasing managers’ index, which tracks monthly changes in manufacturing and services activity and gauges how higher interest rates are affecting the economy.

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In the commodity markets, the price of Brent crude oil per barrel was stable at $75.99. A measure of the dollar’s strength against a basket of six other currencies strengthened by 0.1 percent.

Source: https://www.ft.com/content/9c91cb71-cd32-4073-bc43-b328c3fd36b3