US stocks wobble as investors focus on debt ceiling bill

US stocks crept higher in a choppy Tuesday trading session, as strength in the technology sector was offset by uncertainty about whether lawmakers would pass the debt ceiling bill ahead of the looming June deadline.

Following a long weekend, the tech-heavy Nasdaq Composite added 0.3 per cent, finishing higher for the third session in a row. Wall Street’s benchmark S&P 500 swung between gains and losses, ultimately finishing flat.

A group of Republicans led by Pennsylvania congressman Scott Perry said on Tuesday they would “do everything” in their power to block the deal, casting doubt on whether Congress would pass the debt ceiling deal agreed on Saturday by the default deadline.

Still, the pressure on US Treasuries eased, with the yield on policy-sensitive two-year bills falling 0.13 percentage points to 4.46 per cent. The yield on the benchmark 10-year note was down 0.13 percentage points to 3.69 per cent. Bond yields fall as prices rise.

The yield on Treasury bills that mature next month — at about the date the government could run out of money — eased to 5.25 per cent, having last week hit its highest level in more than 20 years.

The deal agreed on Saturday would raise the country’s $31.4tn debt ceiling for two years until after the next presidential election in late 2024. The bipartisan bill needs to pass both chambers of Congress, with traders poised for the first vote in the House of Representatives on Wednesday.

Elsewhere on Wall Street, AI-related stocks extended their rally from the previous week. Nvidia in morning trading breached $1tn in market capitalisation for the first time, but ultimately closed short of the threshold as its shares finished 3 per cent higher.

Nvidia became the first chipmaker to join the trillion-dollar club — alongside Amazon, Apple and Alphabet — having benefited from the soaring demand for chips used in generative artificial intelligence systems.

The Philadelphia Semiconductor index has added more than 40 per cent since the start of the year, driven by the booming AI industry.

Line chart of Yield on one-month Treasury bills (%) showing Short-term yields drop on hopes of debt ceiling resolution

Energy was among the worst-performing sectors in the S&P 500, as oil prices fell more than 4 per cent. Crude markets are on edge ahead of an Opec meeting this week, when the producer group will decide whether it needs to cut supplies again to support prices driven lower in recent weeks on concerns about a US economic slowdown.

International benchmark Brent was down 4.6 per cent, to $73.54 a barrel, while West Texas Intermediate, the US marker, fell 4.4 per cent, to $69.46.

Meanwhile, the latest report from the Conference Board showed US consumer confidence declined in May as perceptions of the labour market and future business conditions deteriorated amid persistent inflation and concerns about a potential recession.

“Tighter financial conditions have not materially impacted consumers’ buying plans but labour markets are slowing,” said Jeffrey Roach, chief economist at LPL Financial.

In Europe, the region-wide Stoxx 600 was down 0.9 per cent, the CAC 40 lost 1.3 per cent and the FTSE 100 dropped 1.4 per cent.

In foreign exchange markets, the Turkish lira weakened to TL20.4 against the US dollar, hitting a record low after President Recep Tayyip Erdoğan secured victory in the country’s election over the weekend.

The Hang Seng China Enterprises index was down during Asian trading on Tuesday, pushing it 20 per cent lower from its peak in January. That temporarily placed it in bear market territory, although it rallied to close up 0.5 per cent.

Line chart of Equity benchmark performance  year to date (rebased) showing Growth doubts drag on China stocks

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks was also down more than 10 per cent from its peak this year, matching the technical definition of a market correction, although it also rallied to close marginally higher.

Pressure on Chinese stocks follows mounting worries over the outlook for the world’s second-largest economy as tensions rise between Washington and Beijing.

The relentless sell-off reflects a growing consensus among investors that the country’s economic recovery is losing steam, about half a year after Beijing abandoned President Xi Jinping’s disruptive zero-Covid 19 policy.

Winnie Wu, China equity strategist at Bank of America, said clients had described many Chinese stocks as “too cheap to short but not good enough to go long”.

Wu said that while valuations for China shares had become attractive, the recovery remained weaker than anticipated and the economy was likely to continue underperforming without more substantial state support.

Additional reporting by Derek Brower in New York

Leave a Reply

Your email address will not be published. Required fields are marked *