Shares flatline as debt limit talks keep investors on edge

[May 16, 2023]  By Amanda Cooper

LONDON (Reuters) -Global shares held steady on Tuesday, while the dollar eased back from five-week highs ahead of another round of talks among U.S. lawmakers to resolve the deadlock over the government’s borrowing limit.

Other assets such as commodities got no lift from the retreat in the dollar, as concern about demand from China and the resilience of the global economy dented the likes of copper and crude oil.

Volatility was subdued, as investors remained wary of negotiations over the U.S. government debt-ceiling. Without an agreement, in about two weeks, the government might not be able to pay its bills.

Investors have dumped short-term U.S. Treasuries that mature around the "X date" - the point beyond which the government runs out of money to pay its bills without an increase in the borrowing limit.

Other than that, however, global markets are showing little evidence of stress, at least for now.

Michael Brown, a strategist at TraderX, said he believed there would eventually be an agreement, but the concessions President Joe Biden's Democrats may have to make in order to strike a deal could come at a high cost to the U.S. economy.

"What I care about in terms of the debt ceiling, isn't the 'is it going to be raised, is it not going to be raised' pantomime stuff," he said.

"What happens next and what needs to happen to get something over the line and, once it’s done, whether the can is kicked or whether there's a longer agreement, I think that will start to come into investors' thinking a little bit more," he said.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, May 15, 2023. REUTERS/Staff

The MSCI All-World index was up 0.1%, while stocks in Europe were flat and U.S. index futures slipped into negative territory.

There are signs that the global economy is starting to feel the pinch of rising interest rates and persistent inflation.

China saw industrial output rise in April but by far less than economists had expected, while retail sales also fell short of forecasts - highlighting the fragility of the post-COVID recovery. The offshore yuan fell 0.2% on the day against the dollar.

Against the yen, the dollar fell 0.2% to 135.84. The euro rose 0.2% to $1.0894.

Sluggish manufacturing data from New York State on Monday raised concerns about a slowing U.S. economy that could help bring down inflation, which would strengthen the case for the Federal Reserve to stop raising rates.

Retail sales data are on Tuesday and will give an idea of how the U.S. consumer held up in April.

Benchmark 10-year note yields fell 3 basis points to 3.48% on Tuesday.

In commodities, Brent crude fell 0.3% to $74.98 a barrel, while copper fell 1.3% to $8,164 a tonne.

(Additional reporting by Selena Li in Hong Kong; Editing by Muralikumar Anantharaman, Ed Osmond and Chizu Nomiyama)

[© 2023 Thomson Reuters. All rights reserved.]
This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.