Opening Call: The Australian share market is to open higher.
U.S. stocks fell again as investors waited for progress in talks over the debt ceiling. Oil prices rose amid a sharp reduction in U.S. crude inventories. Dollar strength sent gold prices lower for a third straight day. Treasury yields reversed early losses as markets juggled hawkish Federal Reserve comments and somewhat dovish minutes from the Fed’s May meeting.
Australia’s ASX 200 lost 0.7% amid some weakness in the mining sector.
U.S. stocks extended declines, reflecting rising anxieties about the debt ceiling as lawmakers continued negotiations to raise the borrowing limit. The Dow Jones Industrial Average had a fourth-straight session of losses. The Dow fell 0.8%, while the S&P 500 dropped 0.7% and the Nasdaq Composite slid 0.6%. Discussions over the debt ceiling have become a focus of investors in recent days. Stocks initially climbed last week after House Republican leaders and President Biden expressed optimism that they could reach an agreement. But a lack of progress in negotiations has weighed on the market with the two sides divided over how much the government should spend next year.
“This time a week ago, we were feeling pretty optimistic things would be solved, but the realization is: to make the sausage in Washington, it is messy,” said Ryan Detrick, chief market strategist at Carson Group, a financial advisory firm. Most investors still expect Congress will raise the debt ceiling by June 1-the day that Treasury Secretary Janet Yellen warned that the government may not have enough cash to pay all of its bills. Investors worry that a failure to raise the debt ceiling could cause serious economic damage, making it harder to own riskier assets.
Gold futures tallied a third-consecutive session decline, settling at their lowest in nearly a week as further strength in the U.S. dollar pressured prices for the precious metal. Gold gave up early gains that had been driven by uncertainty surrounding a U.S. debt-ceiling deal in Congress.
Gold futures for June delivery declined by 0.5% to settle at $1,964.60 per ounce on Comex. “It has been an interesting session for gold as debt-ceiling angst has yet to trigger safe-haven flows for the precious metal,” said Edward Moya, senior market analyst at Oanda.
Oil futures ended at their highest in more than three weeks after the U.S. government reported a more than 12 million-barrel weekly drop in domestic crude inventories – the largest so far this year. The rise in prices came a day after Saudi Arabia’s energy minister warned of pain ahead for short sellers. Some analysts said his remarks hint at the possibility that major oil producers will agree to cut output even further when they meet in early June, which would lead to tighter supplies.
West Texas Intermediate crude for July delivery rose 2% to settle at $74.34 a barrel on the New York Mercantile Exchange. July Brent crude added 2% to close at $78.36 a barrel on ICE Futures Europe. “Oil demand refuses to fit the weakening economy narrative with demand surging and refiners running all out,” said Phil Flynn, senior market analyst at The Price Futures Group.
“The trends would suggest more crude-oil drawdowns in the coming weeks as gasoline supply is tight” and the market surge in demand is coming, he said. This report should be a wake-up call to hedge fund shorts as the U.S. [gasoline] stocks are tight in New York and the West Coast.”
Earlier Wednesday, Chinese shares ended lower with investor sentiment sapped by a weaker yuan versus the U.S. dollar, growing concerns over a potential local government debt default and delisting risk of some property companies. The Shanghai Composite Index gave up 1.3%, the Shenzhen Composite Index weakened 0.5% and the ChiNext Price Index slipped 0.4%.
Hong Kong’s Hang Seng Index dropped 1.6% as financials, tech companies and developers led losses. Japan’s Nikkei Stock Average fell 0.9% as worries over the U.S. debt-ceiling fight grew.