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Wall Street higher as debt-ceiling talks stay in focus while FTSE closes in the red

A look at how the major markets are performing on Wednesday

FTSE  FILE - President Joe Biden, right, speaks at the top of a meeting with congressional leaders to discuss legislative priorities for the rest of the year, Nov. 29, 2022, in the Roosevelt Room of the White House in Washington, as House Minority Leader Kevin McCarthy of Calif., Senate Majority Leader Chuck Schumer, of N.Y. House Speaker Kevin McCarthy said Sunday, Jan. 29, 2023, that he is looking forward to discussing with Biden a “reasonable and responsible way to lift the debt ceiling” when the two meet for their first sit-down on Wednesday with McCarthy as leader of the chamber. (AP Photo/Andrew Harnik, File)
FTSE closes lower as US debt ceiling talks weigh on sentiment. Photo:Andrew Harnik/AP (ASSOCIATED PRESS)

The FTSE 100 and European stocks finished mostly lower this Wednesday amid nervousness over the US debt ceiling talks.

The FTSE 100 (^FTSE) lost 0.43% to close at 7,717 points during, while the CAC 40 (^FCHI) in Paris slipped 0.15% to 7,395 points. In Germany, the DAX (^GDAXI) bucked the trend and gained 0.24% to 15,936.

US president Joe Biden said he is "optimistic" about securing a deal to avert a potentially catastrophic debt default, after he held talks with Republican leaders.

House speaker Kevin McCarthy, however, said much work remained in negotiations to raise the federal borrowing limit and avert a default, with the deadline for agreement just days away.

"Risk sentiment remains poor as the US couldn't reach an agreement on its debt ceiling... Yesterday, both equities and bonds were sold off on US debt ceiling impasse, while the US dollar index remained capped at two-week highs," said Swissquote Bank's Ipek Ozkardeskaya.

FTSE

In London, companies reporting results included JD Sports Fashion, British Land and the Tesla backer Scottish Mortgage Investment Trust.

JD Sports Fashion (JD.L) shares lost 2.73%, despite the sportswear chain racking up over £10bn ($12.42bn) of sales and adjusted full-year profits of £991m. The company is also reassured by current trading and expects a surplus in the current financial year above £1bn, but shares still fell 2.7p to 167.55p.

British Land (BLND.L) said the value of its portfolio fell by around 12% to £8.9bn in the year through March. Valuations have been hit by rising interest rates, which have pushed up yields on other assets, meaning investors in turn demand higher returns to justify the risk of investing in property. Shares tumbled around 5%.

After British Land wrote off £1.5bn from its real estate portfolio, Edison Group director of research Neil Shah said: "British Land's results indicate some headwinds faced by the property sector, largely driven by higher interest rates and broader economic concerns.

"It's clear that the aggressive interest rate environment and macroeconomic challenges have stifled a tentative recovery from pandemic lows."

Shares in London Stock Exchange Group (LSEG.L) fell 2.62% as a consortium including Thomson Reuters and Blackrock looked to sell a further £2.7bn stake in the bourse operator via a placing at 8,050p per share, below the current share price of 8,112p.

Also, a Special Purpose Acquisition Group (SPAC) has listed on the London Stock Exchange after raising $550m.

Admiral Acquisition Group aims to buy a private company in order to allow them to list on the London Stock Exchange.

The performance of Scottish Mortgage (SMT.L) has continued to slump, with SMT reporting a decline in net asset value of 17.8% and a share price fall of 33.5%, while the FTSE All-World index was down 0.9%.

US and Asia

Stocks were in recovery mode Wednesday following Tuesday’s selloff as investors remain hopeful that the debt-ceiling talks will produce a breakthrough.

The Dow Jones (^DJI) rose 0.33% to 33,121 points. The S&P 500 (^GSPC) gained 0.30% to 4,122 points and the tech-heavy NASDAQ (^IXIC) gained 0.31% to 12,380.

President Joe Biden and Republican leaders have expressed cautious optimism that a deal to raise the US debt ceiling is within reach, following emergency talks at the White House.

Biden said Tuesday's hour-long Oval Office meeting was "good, productive", sounding upbeat about the prospects of an agreement. House of Representatives speaker Kevin McCarthy said afterwards he believed a deal was possible by the end of this week.

Mickey Levy, chief economist for Americas and Asia at Berenberg, said the probability of default on government debt service remains "exceedingly low."

However, things could "get messy if the political skirmishing drags out, and there are risks of temporary delays in government payments of select obligations and/or a partial government shutdown that would affect some basic activities."

“While [House speaker Kevin] McCarthy said a deal is possible by end of this week, the timeline may be by the end of next week ahead of Memorial Day,” JPMorgan's US market intelligence team wrote in a note Wednesday.

President Biden plans to stay in touch with McCarthy over the coming days. Any breakthrough in the talks could potentially impact markets, the team said.

“With that in mind, equities may trade in a tight range until an outcome is observed with the biggest downside risk coming if we enter Memorial Day weekend without a solution, given the early June X-date,” the JPMorgan team added.

In Asia, markets were mixed as investors digested economic data from the region.

Tokyo’s Nikkei 225 (^N225) gained 0.84% to 30,093 points, while the Hang Seng (^HSI) in Hong Kong lost 1.07% to 19,764. The Shanghai Composite (000001.SS) slipped 0.22% to 3,283 points.

It is the first time since September 2021 that the Nikkei traded above 30,000.

The index has been rallying and is up 15% this year as foreign investors piled in amid reports billionaire investor Warren Buffett was considering more investment in Japanese stocks.

Pound

The pound (GBPUSD=X) has fallen against the dollar as investors turn to the safe haven currency amid worries over the world economy, with sterling trading at $1.2460.

MUFG strategist Lee Hardman said: "A period of risk reduction by global investors could begin to weigh more heavily on high beta currencies such as commodity and emerging market currencies, at least until a deal is reached."

The sterling (GBPEUR=X) also lost ground against the euro and is now trading at €1.1475.

Oil markets

Meanwhile, Brent crude (BZ=F) bounced back and was trading at around $75/barrel even as a weaker-than-expected economic data in China and the United States offset a forecast of higher global demand from the International Energy Agency (IEA).

Persisting concerns over “muted industrial activity and higher interest rates ... combined have led to recessionary scenarios gaining traction and worries of a downward shift in the oil demand growth,” the IEA said in its latest monthly Oil Market Report.

Watch: Biden, McCarthy Voice Cautious Optimism on Debt Deal

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