The standstill in discussions to extend the United States’ debt limit left investors fearful of risky assets owing to the blow the global economy would suffer if the United States government defaults, which caused the United States dollar to rise on Thursday. Asian equities plummeted to a two-month low as a result of the standoff.
MSCI’s broadest index of Asia-Pacific equities outside of Japan was down by 0.56% to a two-month low of 505.35, while the S&P/ASX 200 index in Australia was down by 0.78%. The Nikkei continued to defy the trend of the rest of the region by posting a gain of 0.32%.
In the early going of trade, Chinese equities were down 0.01%, while the Hang Seng index in Hong Kong was down 1%.
On Wednesday, negotiators for Democratic President Joe Biden and senior congressional Republican Kevin McCarthy had what both sides described as fruitful negotiations in an effort to strike an agreement to increase the debt limit as quickly as possible.
But since there is no sign of a settlement in sight, traders have continued to be fearful of a potential default that could have devastating consequences. The Secretary of the United States Treasury, Janet Yellen, has maintained that the deadline for defaulting on the debt limit is early June.
At the tail end of Wednesday’s trading day, credit ratings agency Fitch placed the United States on alert for a potential downgrade, which served to further weaken the mood.
“This development raises the spectre of a possible downgrade from the top-tier credit rating, fuelled by the persistent deadlock over the U.S. debt ceiling and the looming threat of a U.S. default,” said Anderson Alves, a trader with ActivTrades.
“These concerns have stoked market volatility and instilled caution among rating agencies and investors.”
Concerns over hitting the debt limit led to a downward close for the major indices on Wall Street overnight. [.N]
After Nvidia Corporation estimated second-quarter revenue that was more than 50% over Wall Street projections, e-mini futures for the S&P 500 increased by 0.38%, while futures for the Nasdaq exploded higher by 1.4% in the early hours of Asian trading.
The chip manufacturer claimed that it was increasing production in order to keep up with the soaring demand for its artificial intelligence chips, which are what power ChatGPT and many other services that are quite similar.
According to the minutes of the meeting that took place on May 2-3, when the policy rate was lifted a quarter of a percentage point to 5.00%–5.25%, Federal Reserve officials “generally agreed” last month that the necessity for additional interest rate rises “had become less certain.” This information was revealed in the minutes of the meeting. Several authorities have indicated that this could be the last price increase.
The head of foreign exchange strategy at the National Australia Bank, Ray Attrill, said that the minutes reflect the rather conflicted tone of most of the post-May meeting discussion among a variety of Fed officials.
“Those advocating for the Fed to not be done at the current 5.0-5.25% do seem open to at least a pause in June,” Attrill said.
According to the CME FedWatch tool, the financial markets are now pricing in a 33.6% possibility of a rate rise of 25 basis points in June, up from 28% during the previous week.
Both the yield on 10-year Treasury notes and the yield on 30-year Treasury bonds increased by 2.6 basis points, bringing them to respective levels of 3.748% and 3.992%, respectively.
The yield on the two-year U.S. Treasury note, which normally fluctuates in tandem with forecasts about future interest rates, increased by 5.3 basis points to reach 4.396%.
Investors avoided debt that may not be serviced in the event that the United States Treasury Department ran out of cash. Overnight, the yields on notes with a maturity date of June 1 reached a high of 7.3710 percent.
On the foreign exchange market, the dollar index, which compares the value of the United States dollar to that of six other currencies, increased by 0.154%, reaching a new high for the last two months of 104.01.
The value of the yen decreased by 0.11% against the dollar to 139.62, while the price of sterling decreased by 0.14% during the day to $1.2347.
Brent oil was priced at $78.19 a barrel, a decrease of 0.22% on the day, while U.S. crude declined by 0.35% to $74.08 a barrel.
