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Stock markets remain hostage to US debt dispute - FOMC minutes in focus

The dispute over raising the debt ceiling in the US remains in the centre of attention, but today the focus is also shifting back to the monetary policy stance of the US Federal Reserve. The minutes of the Fed's last interest rate decision, which are due to be published this evening, could give indications of a possible pause in interest rates. 

Alessandro Fezzi, LGT
Reading time
5 minutes

On Wall Street, equity indices continued to be weighed down by the still unresolved dispute over raising the debt ceiling in the US. The Dow Jones Industrial closed 0.69% lower at 33'055.51 points and the S&P 500 fell 1.12% to 4'145.58 points. On the Nasdaq, the indices fell by around 1.3%. On the bond market, the yield on ten-year US government bonds remained virtually unchanged at 3.7%. Positive economic data from the US did not bring any new impulses. New home sales rose strongly in April by 4.1% compared to the previous month. Analysts, however, had expected a decline of 2.6%. However, the 9.6% increase originally reported for March was revised down to 4.0%, a solid result, nonetheless. The minutes of the Federal Reserve's last interest rate decision on 3 May, due tonight at 8:00 p.m. (CET), are eagerly awaited.

Republicans in the House of Representatives on Tuesday questioned the comments of US Treasury Secretary Janet Yellen, who had set a deadline of 1st June to avoid a possible US default. Meanwhile, negotiators reportedly agreed on a small list of key issues after US President Joe Biden and House Speaker Kevin McCarthy met on Monday afternoon. Among the issues still on the table are reforms to energy permits, new work requirements for some forms of federal aid and the redistribution of unused Covid 19 emergency funds.

Asia-Pacific stock markets were mostly down on Wednesday. Hong Kong's Hang Seng Index fell about 1%, weighed down by healthcare and industrial stocks. Markets in mainland China also extended their losses from Tuesday: The Shanghai Composite fell 0.6% and the Shenzhen Component was marginally lower. In Tokyo, the Nikkei 225 lost 1.1%, although industrial sentiment turned positive for the first time in 2023, according to the Reuters Tankan survey. New Zealand's central bank, meanwhile, raised its key interest rate by 25 basis points to 5.5%. The rate hike, already the twelfth since October 2021, had been expected.

In Europe, sentiment among companies surveyed monthly by S&P Global dimmed again somewhat in May in both the industrial and services sectors. The Purchasing Managers' Index (PMI Composite) for the private sector (industry and service providers) fell from 54.1 points in April to 53.3 (consensus 53.5), the lowest reading for the leading indicator in three months. Particularly in the euro industry, the PMI signalled a contraction with a value below 50 points, while the PMI for the services sector remained well above the growth threshold.

Businesses in the UK were also less confident in May. The Purchasing Managers' Index fell from 54.9 to 53.9 points, while economists had expected only a moderate decline to 54.6. Strikingly, the PMI for the service sector weakened surprisingly significantly.

Corporate news in focus: Marks & Spencer with annual figures, Kingfisher with Q1 sales and Nvidia with Q1 figures.

Economic data in focus: UK consumer and producer prices for April (08:00 CET), Ifo business climate for Germany in May (10:00), Bundesbank monthly report (12:00), FOMC meeting minutes of the interest rate decision of 3 May (20:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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