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US stocks steady after deficit-driven sell-off

US stock markets stabilised on Thursday following a sharp midweek sell-off driven by concerns over the rising US national deficit. European stocks closed lower on the same day, while Asian markets were trading mostly higher on Friday. Investors remain cautious as they digest the potential long-term impacts of US President Donald Trump's tax and spending bill.

  • Date
  • Author Shane Strowmatt, LGT
  • Reading time 5 minutes

US debt ceiling
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US stock markets stabilised on Thursday following a midweek plunge driven by concerns over the rising national deficit. The Dow Jones Industrial Average closed flat at 41,859.09 points, while the S&P 500 dipped marginally to 5842.01 points. The Nasdaq 100 rose by 0.2% to 21,112.47 points. The end to the losing streak comes despite the US House of Representatives narrowly passing Trump's extensive tax and spending bill on Thursday. The legislation, which includes significant tax cuts and increased military and border enforcement funding, is projected to add USD 3.8 trillion to the national debt over the next decade. Investor concerns have been heightened due to the potential impact on the US debt, which stands at 124% of GDP. Meanwhile, US business activity showed improvement in May, with the US Composite Purchasing Managers’ Index rising to 52.1 from 50.6 in April, marking a two-month high. The service sector led this growth, while manufacturing output returned to expansion.

Asian stocks mostly higher

Stocks in the Asia-Pacific region were trading mostly higher on Friday. Japan’s Nikkei 225 was up by 0.5%, after Japan’s core inflation rose to 3.5% in April, the highest in over two years, according to government data released on Friday. This figure, which excludes fresh food prices, surpassed economists' expectations of 3.4% and is the highest since January 2023. Headline inflation remained steady at 3.6%, continuing to exceed the Bank of Japan’s 2% target for more than three years. South Korea’s Kospi was essentially flat after producer prices increased 0.9% year-on-year in April, down from 1.3% in March. Australia’s S&P/ASX 200 was 0.2% higher. Hong Kong’s Hang Seng Index gained 0.6% and mainland China’s CSI 300 saw a marginal increase.

Eurozone PMI falls amid slump in services sector

Eurozone Composite PMI declined to 49.5 in May from 50.4 in April, indicating the first drop in private sector output in five months, according to data released on Thursday. The contraction was driven by a decline in the services sector, with Services PMI falling to a 16-month low of 48.9, while manufacturing output remained stable at 51.5. European stock indices closed lower on Thursday. The Euro Stoxx 50 fell by 0.6%, while Germany’s DAX and France’s CAC 40 declined by 0.5% and 0.6%, respectively. The Swiss Market Index dropped 0.9%.

German business confidence improves in May

The ifo Business Climate Index for Germany increased to 87.5 points in May from 86.9 points in April, reflecting improved sentiment among companies due to less pessimistic expectations. Manufacturing saw a significant rise in the index, with better assessments of the current situation and steady order intake, particularly in the food industry. The service sector also improved, although the current situation was viewed slightly less positively.

Corporate and economic calendar

Corporate news in focus: Annual general meetings at Amgen, Coca-Cola, Porsche, and TotalEnergies.

Economic data in focus: UK retail sales (08:00), German gross domestic product (08:00).

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