European stocks are cautious as US debt ceiling talks resume
European shares traded cautiously on Monday as traders hoped the US Federal Reserve could soon wind down its tightening campaign, while Greece’s stock market soared following parliamentary elections.
The Europe-wide Stoxx 600 gained 0.1 percent, recouping early morning losses, while France’s Cac 40 and Germany’s Dax both lost 0.1 percent.
US futures trading was choppy, with contracts trailing the Wall Street benchmark S&P 500 and the tech-heavy Nasdaq 100 ahead of the New York open.
Markets were encouraged by Fed Chairman Jay Powell, who warned on Friday that tighter credit conditions due to the turmoil in US regional banks could limit how much the central bank needs to raise interest rates to bring inflation back to its 2 percent target.
Athens’ general index rose 7.5 percent to an eight-year high, a day after elections saw Prime Minister Kyriakos Mitsotakis upset his rivals and move a step closer to another four-year term. Banks were among the biggest gainers, with Eurobank up 15.7 percent, National Bank of Greece up 16 percent, and Piraeus Financial Holdings up 13.3 percent.
Greek bonds rose, the yield on the 10-year debt fell by 0.16 percentage points to 3.85 percent, which is the lowest level since the beginning of December, according to Tradeweb data.
Meanwhile, Washington policymakers renewed talks on raising the U.S. debt ceiling after Friday’s withdrawal, with President Joe Biden discussing the issue with Republican House Speaker Kevin McCarthy on Sunday.
Still, the looming deadline weighed on markets, with concerns growing that an unprecedented government default over the summer could send global markets into turmoil and the U.S. economy into recession.
The interest-sensitive two-year Treasury bond yield fell by 0.06 percentage point to 4.23 percent, while the 10-year benchmark bond yield fell by 0.04 percentage point to 3.66 percent. Bond yields rise when prices fall.
Investors in Europe are waiting for the publication of the Eurozone consumer confidence index on Monday. Analysts expect a reading of minus 17 percent in May, up slightly from the previous month but still in negative territory, indicating that overall sentiment remains bearish as high interest rates and prices continue to also burden the region.
Asian stocks were the outliers, the Hang Seng index in Hong Kong increased by 1.2 percent, the Chinese CSI 300 by 0.6 percent, and the Japanese Topix by 0.7 percent.
Shares in China’s semiconductor sector surged after Beijing banned key infrastructure operators from buying products from U.S. chip maker Micron Technology, saying it posed a “serious network security risk.”
Semiconductor Manufacturing International, China’s largest contract chip maker, rose 1.2 percent on Monday, while second-largest Hua Hong Semiconductor rose 0.9 percent in Hong Kong. The Hang Seng Tech Index rose 2.1 percent.