August 11, 2022

Debt Worries Push European Markets Down

A warning that the United States may lose its cherished triple-A credit rating and concerns over Europe’s debt problems weighed on stock markets Thursday, though an indication that the Federal Reserve could provide more monetary stimulus limited losses overseas and pushed Wall Street stocks positive.

Moody’s Investors Service warned late Wednesday that it may downgrade its view on Treasuries because of the failure of the White House and Congress to agree on a deal to raise the $14.3 trillion borrowing limit and avoid a default.

“The review of the U.S. government’s bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes,” Moody’s said. “As such, there is a small but rising risk of a short-lived default.”

The Dow Jones industrial average opened slightly higher, adding 2.35 points to 12,493.96.

In Europe, the FTSE 100 index of leading British shares was down 0.51 percent at 5,876.03 points, while Germany’s DAX fell 0.43 percent to 7,236.53 points. The CAC 40 in France was 0.76 percent lower at 3,764.63.

Though most analysts think the American politicians will agree to raise the threshold by the early August deadline, the warning from Moody’s reminded investors that high debt is not just a European problem and knocked confidence in the markets. China, too, urged the leaders in Washington to “guarantee the interests of investors.” China is the United States’ biggest creditor, holding more than $1 trillion in Treasuries.

“Further talks (between the White House and Congress) are scheduled today and investors will continue to watch the situation, which is likely to keep both the dollar and stock market somewhat sensitive,” said Joshua Raymond, chief market strategist at City Index.

Despite the warning from Moody’s, investors were heartened by comments by the Fed chairman, Ben S. Bernanke, that the central bank was prepared to pump more money into the economy if the current economic lull persists.

Before trading began, JPMorgan Chase reported that its second-quarter profit rose 13 percent, to $5.4 billion, from the period a year earlier.

Earnings from Google, to be released after Wall Street closes, could well be a key factor in how stocks end the week.

Investors were also keeping a close watch on developments in the euro zone, especially in Italy. Earlier this week, there appeared to be a growing sign that Italy and Spain would be dragged into the debt crisis that has already seen Greece, Ireland and Portugal bailed out.

However, an acceleration in the Italian government’s budget proposals has helped calm tensions somewhat, despite news that the government had to pay a far higher interest rate in a five-year bond auction.

The easing in tensions over Europe’s debt crisis has been evident in the currency markets. The euro has recovered since Tuesday, when it slid to below $1.39. On Thursday it was trading slightly higher on the day, at $1.4187.

Earlier in Asia, Japan’s Nikkei 225 stock average finished down 0.3 percent at 9,936.12, while Hong Kong’s Hang Seng index inched up 0.1 percent to 21,940.20. The Shanghai Composite Index climbed 0.5 percent to 2,810.40.

Oil prices hovered near $98 a barrel as traders mulled a possible new round of American monetary stimulus.

Benchmark crude for August delivery was up 29 cents at $98.34 a barrel in electronic trading on the New York Mercantile Exchange.

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