EUROPEAN and US stock markets mostly drifted lower yesterday as traders awaited possible developments on a US debt deal necessary to avert a default.

Sentiment was also weighed down by data showing weakness in China’s economic recovery, with key indicators missing expectations owing to anaemic domestic demand.

Meanwhile, US retail sales rebounded less than expected last month, and a major US retailer, Home Depot, saw its first-quarter revenue drop as consumer spending softened.

The dollar edged higher against main rivals while oil prices fell.

“Concerns are rising that not enough progress is being made to avoid a US default, which would send shockwaves through financial markets,” noted Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Elsewhere, “China’s pandemic snapback is losing elasticity, adding to worries about growth unravelling across the global economy,” she said.

Following a meeting at the White House, US House Speaker Kevin McCarthy said much work remained in negotiations to raise the federal borrowing limit and avert a potentially catastrophic credit default, with the deadline for agreement just days away.

Treasury Secretary Janet Yellen warned again on Monday the US government would probably run out of cash on June 1, meaning it would not be able to meet its debt repayment obligations, sparking a potentially devastating default.

Republicans are demanding spending cuts as a condition for passing the bill while Democrats want a “clean” increase of the borrowing limit with no strings attached.

The Dow dropped 1%, while the Nasdaq inched lower, with gains by Amazon, Google parent Alphabet and others offsetting losses elsewhere.

Europe’s main stock markets also closed lower.

Data showing that US retail sales rose 0.4% last month, less than analysts had expected, also dampened sentiment.

Briefing.com analyst Patrick O’Hare said the data “weren’t strong enough to mitigate worries about weakening consumer activity nor was it weak enough to make the Fed think it should entertain a rate cut anytime soon”.

Several US Federal Reserve policymakers have spoken in recent days, but have been divided on whether to pause the US central bank’s interest rate-hiking drive next month or raise rates further.

Higher interest rates have begun to squeeze consumers and have caused four midsize US banks to close or be seized by regulators and sold off in the past couple of months.

“Wall Street is bracing for something bad to happen, but no one has an idea on what will be that catalyst,” said OANDA analyst Edward Moya.

“It could be a debt ceiling impasse, persistent banking fears, or a much weaker consumer as sticky inflation becomes more noticeable,” he said.  

Key figures around 8.30pm:

New York - Dow: DOWN 1.0% at 33,012.14 (close)

New York - S&P 500: DOWN 0.6% at 4,109.90 (close)

New York - Nasdaq: DOWN 0.2% at 12,343.05 (close)

London - FTSE 100: DOWN 0.3% at 7,751.08 (close)

Frankfurt - DAX: DOWN 0.1% at 15,897.93 (close)

Paris - CAC 40: DOWN 0.2% at 7,406.01 (close)

EURO STOXX 50: FLAT at 4,315.51 (close)

Tokyo - Nikkei 225: UP 0.7% at 29,842.99 (close)

Hong Kong - Hang Seng Index: FLAT at 19,978.25 (close)

Shanghai - Composite: DOWN 0.6% at 3,290.99 (close)

Euro/dollar: DOWN at US$1.0865 from US$1.0874 on Monday

Pound/dollar: DOWN at US$1.2483 from US$1.2529

Dollar/yen: UP at ¥136.37 from ¥136.12 

Euro/pound: UP at 87.01 pence from 86.80 pence

Brent North Sea crude: DOWN 0.4% at US$74.91 per barrel 

West Texas Intermediate: DOWN 0.4% at US$70.86 per barrel. – AFP, May 17, 2023.