Wall Street dipped early on Wednesday along with global stock markets ahead of a vote by the US Congress to avert a government debt default, while a downturn in Chinese factory activity deepened, another indication that the global economy is slowing.
Futures for the benchmark S and P 500 fell 0.4 per cent and the Dow Jones industrials lost 0.3 per cent ahead of a vote by the full 435-member House on raising the government debt limit. Some legislators object to spending cuts in the plan while others want bigger reductions.
President Joe Biden and Speaker Kevin McCarthy of the House of Representatives tried to line up votes to raise the amount the government is allowed to borrow. Officials warn the Treasury will run out of money as soon as next week, which would roil the economy and financial markets. Any upcoming obstacle to a smooth pass-through of the deal could still trigger some de-risking, Yeap Jun Rong of IG said in a report.
Uncertainty about US government debt is contributing to unease over interest rate hikes by central banks that are trying to cool inflation. Even without a default, all the partisan brinkmanship in Washington could erode faith in the US government. That could trigger another downgrade to its credit rating, following the shocking Standard and Poor's rating cut in 2011.
Traders are bracing for another possible increase in the Federal Reserve's key lending rate at its next meeting in two weeks but hope that will be the last in this cycle. An official Chinese survey of manufacturers released on Wednesday found activity contracted in May on weak global and domestic consumer demand.
Recovery for the world's No. 2 economy has been weaker than economists and investors hoped, likely contributing to steadily declining oil prices. A monthly purchasing managers' index issued by the national statistics agency and an industry group declined to 48.4 from April's 49.2 on a 100-point scale in which numbers below 50 show activity declining. Manufacturers have been hurt by weak global demand and a slower-than-expected recovery in Chinese consumer spending.
In Asia, the Shanghai Composite Index lost 0.6 per cent to 3,204.56 and the Nikkei 225 in Tokyo fell 1.4 per cent to 30,887.88. The Hang Seng in Hong Kong tumbled 1.9 per cent to 18,234.27. The Kospi in Seoul retreated 0.3 per cent to 2,577.12 and the S and P-ASX 200 in Sydney fell 1.6 per cent to 7,091.30.
India's Sensex lost 0.7 per cent to 62,514.88. New Zealand advanced while Southeast Asian markets declined. Advance Auto Parts slid 26 per cent in premarket after it badly missed Wall Street's first-quarter earnings targets and cut full-year profit guidance by more than 40 per cent.
At midday in Europe, the CAC 40 in Paris sank 0.7 per cent, the DAX in Frankfurt retreated 0.4 per cent and the FTSE 100 in London lost 0.2 per cent. In energy markets, benchmark US crude lost another USD 1.87 to USD 67.59 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell USD 3.21 on Tuesday to USD 69.46, falling below USD 70 this week for the first time in more than two months.
Brent crude, the price basis for international oil trading, shed USD 1.72 to USD 71.99 per barrel in London. It sank USD 3.53 the previous session to USD 73.54. The dollar declined to 139.77 yen from Tuesday's 139.87 yen. The euro retreated to USD 1.0680 from USD 1.0719.
On Tuesday, the S and P 500 index edged up less than 0.1 per cent, while the Dow slipped 0.2 per cent and the Nasdaq composite rose 0.3 per cent.
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