Asian shares tentative, US debt ceiling talks weigh on risk appetite

Asian stocks fell on Wednesday and the dollar hovered around a five-week peak as investors remained risk averse, with US debt ceiling talks and a mixed batch of economic data weighing on sentiment.

MSCI’s broadest index of Asia-Pacific stocks outside Japan was down 0.20 percent, while Australia’s S&P/ASX 200 was down 0.56 percent. The Shanghai Composite and Hong Kong’s Hang Seng Index fell 0.4 percent, weighed down by China’s data showing a wobbly post-Covid recovery.

However, Japan’s Nikkei rose 0.68 percent, crossing 30,000 for the first time since September 2021.

Democratic President Joe Biden and Republican Congressman Kevin McCarthy are close to reaching a deal to avert a looming US debt default on Tuesday.

After an hour of talks, McCarthy, the Speaker of the House, told reporters that the two sides remained far apart on an agreement to raise the debt ceiling.

But he said: “It is possible to get a deal by the end of the week. It is not difficult to reach an agreement.”

Without a deal, in about two weeks, the government may not be able to pay its bills, as economists fear the country is likely to slide into recession.

As the deadline approaches, Saira Malik, chief investment officer at Noveen, said, “One thing investors can be sure of is that more uncertainty lies ahead.” Malik expects more volatility in the equity and fixed income markets so that there is greater clarity on the outcome of the negotiations.

The most likely scenario is that a resolution is reached, perhaps at the eleventh hour, to enable the federal government to fulfill its obligations.

US stocks closed lower

US stock indexes closed lower overnight, dragged down by the tough outlook from Home Depot and US retail sales data for April which confirmed weak consumer spending.

Economists at ING said the main macro focus is on the US retail sales figures. “These actually came in on the lower end of expectations although the news was mixed, with the title dropping but higher underlying sales numbers muddled the message.”

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Recent economic data indicates that the US economy is slowing down after a series of interest rate hikes by the Federal Reserve to fight high inflation. Markets are pricing the Fed in for a year-end rate cut, according to CME FedWatch, but some Fed officials have stuck to hawkish rhetoric.

Atlanta Fed President Raphael Bostick said the Fed will need to remain “extremely strong” in fighting inflation even if the unemployment rate starts to rise later in the year, while Chicago Fed President Austin Goolsby said it’s too early to discuss Interest rate cuts.

Dollar index inches higher

Meanwhile, the dollar index, which measures the greenback against six rivals, rose 0.01 percent to 102.61, just close to a five-week high of 102.75 touched on Monday.

The Japanese yen fell 0.05 percent to 136.47 per dollar, while the British pound was last traded at 1.248 dollars, down 0.04 percent on the day.

US crude fell 0.31 percent to $70.64 a barrel, and Brent crude was $74.69, down 0.29 percent on the day, as a sudden rise in US crude inventories fueled demand concerns in the wake of weaker-than-expected economic data from the United States and. China, the two largest oil consumers in the world.

Gold prices stabilized after falling below $2,000 an ounce in the previous session. Spot gold was last priced at $1,991.49 an ounce