Global equities were down, U.S. shares were mixed and the dollar rallied to the highest since mid-March on Thursday after a top Republican signaled some progress was made in U.S. debt ceiling negotiations.Spot gold prices dropped to a two-month low amid the greenback’s gains. European markets largely shrugged off news that its biggest economy, Germany, had sagged into recession. Washington’s short-term borrowing costs jumped after Fitch put its U.S. rating on downgrade watch late on Wednesday.
The S&P 500 gained 25.91 points, or 0.63%, to 4,141.15 by 10:52 a.m. EDT (1454 GMT). The gained 173.66 points, or 1.39%, to 12,657.82 as chipmaking giant Nvidia deliveredforecast-smashing revenue. Its shares were up 25%.The Dow Jones Industrial Average fell 69.73 points, or 0.21%, to 32,730.19.The MSCI world equity index, which tracks shares in 49 nations, gained 0.07%.The STOXX 600 index fell 1.05%, and Europe’s broad FTSEurofirst 300 index fell 2.53 points.Updated German GDP figures showed the euro zone powerhouse slipped into recession in the first few months of the year despite the initial reading suggesting otherwise.
The data pressured the Euro down 0.2% to $1.0725.”Unfortunately you have this plethora of risks hitting the markets right now,” said Invesco’s Director of Macro Research Ben Jones.He expects the debt ceiling issue to be resolved before a default is triggered. “Although once we get past that it’s not going to be green open meadows and milk and cookies,” he added, pointing to a backlog of $800 billion of short-term U.S. debt that would need to be issued over the remainder of the year.Asia had been divided overnight with Japan plodding higher but Hong Kong tumbling almost 2% to its weakest level of the year amid renewed geopolitical concerns surrounding Chinese tech giants such as Tencent, Alibaba , AIA and Meituan listed there.
Back in Washington, negotiators for President Joe Biden and top congressional Republican Kevin McCarthy held what both sides called productive talks on the debt ceiling. But with no resolution in sight, traders remained wary of a possible default in early June.”There’s a beginning of a sense that maybe this time is a little bit different,” said Rob Carnell, ING’s regional head of research, Asia-Pacific.A downgrade could affect the pricing of trillions of dollars of Treasury debt securities. A warning about just such a move by Fitch on Wednesday was mirrored by smaller rival DBRS on Thursday. The moves revived memories of 2011, when S&P downgraded the U.S. and set off a cascade of other downgrades as well as a stock market sell off.”I hope Fitch knows the consequences of doing this and they’re almost doing it just to try to put a bit of pressure on,” ING’s Carnell said. “It doesn’t necessarily mean they will downgrade but it’s like saying, ‘you better be mindful, otherwise this is coming’.
“On the interest rate front, Federal Reserve minutes had shown its policymakers “generally agreed” that the need for further rate increases “had become less certain” at their the May 2-3 meeting when they raised rates another quarter percentage point to 5.00%-5.25%.The dollar index, which tracks the greenback against a basket of six currencies, gained 0.26 points, or 0.25%, to 104.15.U.S. crude fell 2.49% to $72.49 a barrel, as benchmark Brent crude futures dropped to $76.65 per barrel.Spot gold prices fell 0.54% to $1,946.39 an ounce.