Wall Street turns red, dollar dips as debt ceiling talks stall

NEW YORK : U.S. stocks turned lower and the dollar lost ground on Friday as negotiations to raise the U.S. debt ceiling were put on hold, jarring market participants as they headed into the weekend and the United States moved closer to the deadline to avoid default.

While all three major U.S. stock indexes were modestly in the red, they remained on track to notch weekly gains.

Initial reports that debt ceiling negotiations had reached an impasse rattled markets even as investors were scrutinizing Federal Reserve Chairman Jerome Powell’s remarks in a panel discussion for clues regarding next month’s interest rate decision.

“All eyes are on Washington and investors remain focused on the debt ceiling,” said David Carter, investment specialist at JPMorgan Private Bank in New York. “It’s a bit like watching a nuclear standoff and hoping the other guy isn’t crazy enough to hit the button.”

In his remarks, Powell said that uncertainties surrounding the lagging impact of rate hikes and recent bank credit tightening made it unclear whether more monetary tightening will be necessary.

“Investors are trying to better understand if tighter bank lending due to the regional bank crisis will allow the Fed to at least pause on future rate increase,” Carter added. “This is new territory and (it is) not perfectly clear if the Fed will allow tighter bank lending to replace tighter monetary policy.”

Adding to market volatility, Treasury Secretary Janet Yellen told bank CEOs that more mergers may be necessary to staunch the banking liquidity crisis, according to CNN.

The Dow Jones Industrial Average fell 119.82 points, or 0.36 per cent, to 33,416.09, the S&P 500 lost 11.26 points, or 0.27 per cent, to 4,186.79 and the Nasdaq Composite dropped 53.04 points, or 0.42 per cent, to 12,635.79.

European shares closed higher and the German DAX reached a record high as hopes of progress in U.S. debt ceiling talks boosted investor sentiment. Europe’s trading day ended prior to reports that the talks had stalled.

The pan-European STOXX 600 index rose 0.66 per cent and MSCI’s gauge of stocks across the globe gained 0.05 per cent.

Emerging market stocks lost 0.07 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.15 per cent higher, while Japan’s Nikkei rose 0.77 per cent.

The greenback lost ground against a basket of world currencies after Powell’s remarks hinted at a slightly dovish shift, opening the door to the possibility of a rate hike pause at the conclusion of next month’s policy meeting.

The dollar index fell 0.42 per cent, with the euro up 0.34 per cent to $1.0806.

The Japanese yen strengthened 0.53 per cent versus the greenback to 138.00 per dollar, while sterling was last trading at $1.2448, up 0.32 per cent on the day.

Treasury yields wobbled on debt ceiling worries, but resumed their ascent as another Fed rate hike in June remained possible in the wake of solid economic data and Fed officials reiterating this week that inflation remained too high.

Benchmark 10-year notes last fell 9/32 in price to yield 3.6822 per cent from 3.648 per cent late on Thursday. The 30-year bond last fell 23/32 in price to yield 3.9438 per cent, from 3.901 per cent late on Thursday.

Oil prices edged lower following news that the debt ceiling talks were on pause, raising the possibility of a default that could hit energy demand.

U.S. crude dropped by 0.43 per cent to settle at $71.55 per barrel, while Brent settled at $75.58 per barrel, down 0.37 per cent on the day.

Gold prices advanced as the dollar dipped on renewed concerns of instability in the banking sector. Spot gold added 1.0 per cent to $1,978.49 an ounce.



Source: Reuters