Shares flatline as debt limit talks keep investors on edge

Global stocks were flat on Tuesday, while the dollar retreated from a five-week high ahead of another round of talks between US lawmakers to resolve an impasse over a government borrowing limit.

Other assets such as commodities did not get any boost from the dollar’s decline, as concerns about demand from China and the resilience of the global economy weighed on the likes of copper and crude oil.

Volatility was subdued, as investors remained concerned about negotiations over the US government’s debt ceiling. Without an agreement, in about two weeks, the government may not be able to pay its bills.

Investors have dumped short-term US Treasury bonds that mature around the “X date” — the point at which the government runs out of money to pay its bills without increasing the borrowing limit.

Other than that, global markets show little sign of stress, at least for now.

Michael Brown, a strategist at TraderX, said he believes there will eventually be a deal, but the concessions Democrats led by President Joe Biden may have to make in order to strike a deal could come at a high cost to the US economy.

“What concerns me as far as the debt ceiling is concerned,” he said, “isn’t a ‘will it be raised, won’t it be brought up’ gestural stuff”.

“What’s going to happen next and what needs to happen to get something over the line, and once that’s done, whether the can has been kicked or whether there’s a longer agreement, I think that’s going to start investors thinking a little bit more,” he said.

The MSCI All-World Index rose 0.1 percent, while equities were flat in Europe and US index futures fell into negative territory. There are signs that the global economy is starting to feel the crisis of rising interest rates and continuing inflation.

China saw industrial production rise in April but far less than economists expected, while retail sales also fell short of expectations – highlighting the fragility of the post-Covid recovery. The offshore yuan fell 0.2 percent on the day against the dollar.

Against the yen, the dollar fell 0.2 percent to 135.84. The euro rose 0.2 percent to $1.0894.

Sluggish manufacturing data from New York state on Monday raised concerns about a slowing US economy that could help lower inflation, which will strengthen the Federal Reserve’s stance to halt interest rate hikes.

Retail sales data will be released on Tuesday and will give an idea of ​​how the US consumer fared in April. Benchmark 10-year bond yields fell 3 basis points to 3.48 percent on Tuesday. In commodities, Brent crude fell 0.3 percent to $74.98 a barrel, while copper fell 1.3 percent to $8,164 a ton.