Markets tumble over US debt ceiling, China growth concerns


Published: 2023-05-31 21:07

Last Updated: 2024-05-17 16:18

Markets tumble over US debt ceiling, China growth concerns
Markets tumble over US debt ceiling, China growth concerns

Stock markets slid Wednesday as a deal to raise the US debt ceiling faced backlash from hardline Republicans ahead of a crucial vote and data showed weakness in the Chinese economy.

Investors are also fretting over another possible interest rate hike by the US Federal Reserve next month as inflation remains elevated.

While the debt deal between US President Joe Biden and House Speaker Kevin McCarthy should have buoyed the markets, multiple Republicans have announced their opposition ahead of a vote in Congress later on Wednesday.

Major European and Asian stock markets closed sharply lower while Wall Street was down near midday.

"With some hardliners in the Republican party coming out against the agreement, its passage through Congress could be bumpy," warned AJ Bell investment director Russ Mould.

Members on both sides of the political spectrum have raised concerns about the agreement, with Republicans saying it does not have enough spending cuts and the left wing of the Democratic Party unhappy that Biden agreed to any limits at all.

The Treasury has warned that if the borrowing ceiling is not lifted by June 5, the government will run out of cash to service its debt obligations.

McCarthy has described the deal as "transformational" and expressed confidence the bill will pass.

Leading Freedom Caucus member Chip Roy warned McCarthy would face a "reckoning". That came as another Republican representative, Dan Bishop, called party members to vote McCarthy out as speaker.

Sentiment was given an extra jolt after data showed China's manufacturing activity contracted even further last month as leaders struggled to kickstart the world's number-two economy.

The country's growth has stalled this year, despite expectations for a surge after strict Covid rules were lifted at the end of last year.

"The release of Chinese PMI data further soured the mood of the market, with the unspectacular numbers reminding financial markets that a strong Chinese recovery remains a hope rather than a reality," said Tim Waterer, chief market analyst at KCM Trade.

Traders are also bracing for the Fed's rate decision next month after data last week showed a key gauge of inflation rising in April.

In Europe, however, data showed inflation in the eurozone's top economies, Germany and France, cooled sharply in May.

Elsewhere, oil prices steadied after falling earlier over demand concerns in China and the United States.