European stocks fell on Wednesday, as the US debt ceiling deadline weighed on investors as policymakers in Washington failed to agree on a deal to increase the country’s spending limit.
The Stoxx 600 index in Europe fell 0.7 percent, and the French CAC 40 index fell 0.6 percent in the first hour of trading.
These moves come after US President Joe Biden and four members of Congress failed on Tuesday to reach an agreement to raise the country’s debt ceiling and avoid an unprecedented government default.
Officials such as Treasury Secretary Janet Yellen have warned that the United States could default on its debt as early as next month if lawmakers fail to reach a compromise, with an approaching deadline prompting Biden to cut short his upcoming foreign trip.
However, US futures rose, with those tracking the Wall Street benchmark S&P 500 up 0.2 percent, while those tracking the tech-heavy Nasdaq 100 index up 0.1 percent before the New York open.
“Markets will start pricing in debt ceiling fears in mid-June, when it becomes clear that negotiations are likely to drag on to the last minute and political mishaps can occur,” said Mohit Kumar, chief financial economist for Europe at Jefferies.
Government bonds were also stable from previous sessions, as the yield on two-year interest rate-sensitive Treasury bonds rose 0.01 percentage point to 4.08 percent. The yield on the benchmark 10-year bond decreased 0.02 percentage point, at 3.53 percent. Bond yields rise when prices fall.
The dollar index, which measures the currency against a basket of six peers, rose 0.3 percent.
Meanwhile, traders in Europe await the release of the final harmonized index of consumer prices in the eurozone for April, with analysts expecting a slight increase in the annual rate to 7 percent, from 6.9 percent in March.
However, policymakers would welcome the expected decline in core inflation, which excludes food and energy costs and provides a better measure of underlying price pressures.
The European Central Bank slowed the pace of its rate increases this month, raising the deposit rate by a quarter of a percentage point to 3.25 percent, but said it had more ground to cover.
Asian stocks followed US markets, with China’s CSI 300 down 0.5 percent and Hong Kong’s Hang Seng down 2.3 percent.
Japan’s Topix bucked the trend, rising 0.3 percent, following stronger-than-expected GDP numbers.
The Japanese economy grew at an annual rate of 1.6 percent in the January-March period from the previous quarter, beating economists’ expectations of a 0.7 percent gain, on the back of a post-Covid recovery in household spending.