US stocks fell on Wednesday as the country’s debt ceiling bill was due to face its first test in Congress, while strong labour market data increased the chances that the Federal Reserve will continue to raise rates.
Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq Composite both lost 0.9 per cent, extending early losses.
The move came after official data showed that the number of US job vacancies unexpectedly rose in April, pointing to a resilient labour market and making further tightening by the Fed more likely.
Futures markets are now pricing in an almost 70 per cent chance of another interest rate rise in June.
Market speculation on tighter policy “is still offering a good deal of support to the dollar”, said Francesco Pesole, FX strategist at ING.
The greenback strengthened 0.4 per cent against a basket of six peers, with the dollar index reaching its highest point since mid-March.
Meanwhile, traders fretted as the House of Representatives, the lower chamber of US Congress, was due to vote on the bill to raise the country’s $31.4tn debt ceiling for two years to avert a government default.
If successful, the bipartisan bill will pass to the Senate by the end of the week, leaving limited time before the early June deadline when the government is expected to run out of money.
The yield on US Treasury bills that mature next month — at about the date the government could run out of money — eased to 5.2 per cent, having reached its highest level in at least 20 years last week at more than 6 per cent. Bond yields rise as prices fall.
The pressure on longer-term Treasuries eased, with the yield on policy-sensitive two-year bills falling 0.05 percentage points to 4.42 per cent. The yield on the benchmark 10-year note was down 0.03 percentage points to 3.67 per cent.
“The bulk of the risk of the debt ceiling issue is off the table. The market is paralysed, it seems, until the issue is legally concluded,” said Mike Zigmont, head of research and trading at Harvest Volatility.
European stocks, which were already trading lower following poor economic data from China, extended losses as Wall Street opened.
The pan-European Stoxx 600 closed 1.1 per cent lower, Germany’s Dax lost 1.5 per cent, France’s Cac 40 fell 1.5 per cent and London’s FTSE 100 slipped 1 per cent.
The region’s markets were led lower by Asia, where China’s CSI 300 index fell 1 per cent after the country’s statistics bureau reported a contraction in manufacturing activity in May, defying analysts who had expected an expansion, and further damping traders’ hopes for a swift post-coronavirus pandemic recovery.
“Far from being the powerhouse which will offset America’s slowdown, China’s economic recovery from the pandemic is looking more precarious,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Hong Kong’s Hang Seng China Enterprises index dropped 1.9 per cent, bringing the benchmark more than 20 per cent lower from its recent peak in January and into bear market territory.
Preliminary data in Germany showed that annual consumer price inflation slowed to 6.1 per cent in May, down from 7.2 per cent in the previous month, adding to signs that price pressures are easing quickly across the region.
In France inflation slipped to 6 per cent in May, its lowest level for a year and below analysts’ forecasts, raising hopes that the European Central Bank is nearing the end of its tightening cycle.
Eurozone-wide inflation figures are due to come out on Thursday.
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