March 9, 2021

Debt Impasse Fuels Gloomy Trading

Stocks were weighed down again on Wednesday by worries that the United States could default on its debt or see its credit rating cut as lawmakers in the world’s largest economy appeared no nearer to an agreement on raising the borrowing limit.

In morning trading, the Dow Jones industrial average shed 140.47 points, or 1.12 percent, to 12,360.83. The broader Standard Poor’s 500-stock index lost 20.27 points, or 1.52 percent, to 1,311.67, and the technology-stock-heavy Nasdaq composite index lost 62.47 points, or 2.20 percent, to 2,777.49.

The United States has one week to reach a deal to increase its $14.3 trillion debt limit or face not being able to pay all of its bills.

Republican leaders had promised a vote on Wednesday in the House of Representatives on a plan to increase the debt limit and avoid America’s first-ever default. But the vote was put off until at least Thursday.

Though most investors think a last-minute deal to raise the debt limit will eventually emerge, the difficulty of reaching an agreement may leave a lasting impression on investor sentiment, some traders fear. That was evident in the price of gold, widely used as a haven investment; it reached a nominal record high above $1,625 an ounce on Wednesday.

A worry in the markets is that only a short-term deal will be struck, with a promise to revisit the issue later.

“Investors remain hopeful that a deal can be made in time, but the longer the delay goes on, the more entrenched investors’ fears become,” said Joshua Raymond, chief market strategist at City Index.

In Europe, the FTSE 100 index of leading British shares and the DAX in Germany each fell about half a percent. The CAC 40 in France fared worse, trading 0.90 percent lower.

A raft of disappointing earnings in Europe did nothing to lift the mood. Banco Santander of Spain, the French car company Peugeot and the German pharmaceutical maker Merck were all trading sharply lower after their latest earnings updates.

Ben Critchley, a sales trader at IG Index, said investors would be keeping a close watch on the Congressional testimony of senior staff members of credit rating agencies in Washington on Wednesday.

“This may offer further direction on the likelihood of a downgrade for the U.S.,” he said.

In the currency market, the prospect of a potential American default also remained the main consideration. Not surprising, the dollar has drifted lower for most of the last few days.

The dollar, however, was managing to hold relatively steady on Wednesday, particularly against the euro. The euro was trading 0.2 percent lower, at $1.4462, while the dollar was 0.3 percent lower, at 77.70 yen.

The yen’s renewed strength against the dollar has reignited talk that the Bank of Japan would intervene again to stem the export-sapping rise in its currency. In March, after a devastating earthquake and tsunami, the Bank of Japan and other major central banks around the world intervened in the markets when the dollar was trading around the 76-yen mark.

The yen’s spike weighed on the country’s Nikkei 225 stock average, as much of Japan’s economic well-being is dependent on the performance of its exporters. The Nikkei closed 0.5 percent lower, at 10,047.19 points.

Elsewhere, the Kospi in South Korea edged up 0.3 percent to finish at 2,174.31 points, while the Hang Seng index in Hong Kong fell 0.1 percent, closing at 22,541.69 points.

Chinese shares gained strongly as investors snapped up bargains two days after a sell-off led by railroad shares after a deadly train crash in the country’s east.

The Shanghai composite index gained 0.8 percent, closing at 2,723.49 points, and the smaller Shenzhen composite index gained 1.7 percent, to end at 1,190.83 points.

Oil prices dropped to near $99 a barrel after a report showed American crude supplies had unexpectedly risen last week, suggesting that demand might be weakening. The main New York oil contract was down 49 cents, to $99.10 a barrel, in electronic trading on the New York Mercantile Exchange.

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