Havens Gain as US Debt Stalemate Sidelines Traders:
Yellen sticks with warning US may run out of cash in June
Japan’s Topix closes at highest since 1990; China data miss
Investors gravitated to havens including Treasuries and technology shares amid the stalemate in Washington over whether to raise the US debt ceiling.
Yields on benchmark 10-year Treasury notes dropped four basis points, while contracts on the S&P 500 slipped 0.2%. In Europe, technology shares were the biggest gainers in the Stoxx Europe 600 index. Telecom stocks dragged down the index, punctuated by a loss of as much as 5.4% in Telecom Italia SpA shares.
“We are all looking to Congress and the White House to see how the US debt ceiling discussions are moving ahead,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “Now that we have sufficient clarity on central bank policy and are close to the rate hike cycle peak, investors are looking for clarity on the political front before the coming earnings season.”
Debt-ceiling talks are scheduled Tuesday between President Joe Biden and House Speaker Kevin McCarthy. Treasury Secretary Janet Yellen warned that the US is already paying a price for its failure to raise the federal debt limit and reiterated her department may run out of cash by early June. Still, most investors say they expect politicians to reach a last-minute deal to stave off default.
At the same time, traders have hedged worst-case scenarios by parking in cash, Treasuries and tech stocks, according to Bank of America Corp.’s latest survey. If the latest debt-ceiling episode plays out like 2011, Treasuries could be a big beneficiary in the run-up to the June 1 deadline.
Elsewhere, Japan’s Topix equities benchmark climbed to the highest since 1990. A renewed push by Japan’s corporates to increase buybacks and focus on returns is helping boost sentiment, with the Nikkei 225 Stock Average leading gains among Asia’s major benchmarks in 2023.
“We believe Japanese stocks still have further to go,” Fabiana Fedeli, chief investment officer for equities and multi assets at M&G Plc, said on Bloomberg Television. “Companies in Japan were improving their balance sheets and were giving back to shareholders in terms of buybacks and dividends.”
Chinese stocks fell in Shanghai and Shenzhen after official data showed industrial output, retail sales and fixed investment all missed estimates in April. Analysts forecast more policy support later this year.
“Markets are still absorbing some of this morning’s earnings reports, but today’s China data was a little disappointing which is prompting some weakness in luxury retail and basic resources,” said Michael Hewson, chief market analyst at CMC Markets UK.