Asian stocks tumble before US Congress passes deal to avoid default

BEIJING (AP) — Asian stock markets fell Wednesday ahead of Congress’s vote on an agreement to avoid a government debt default, while a slowdown in Chinese factory activity worsened, adding signs that global economic activity is weakening.

Shanghai, Tokyo, Hong Kong and Sydney fell. Oil prices have fallen.

Wall Street’s benchmark S&P 500 index edged up less than 0.1% on Tuesday as President Joe Biden and US House Speaker Kevin McCarthy tried to line up votes in favor their agreement to allow the government to borrow more. Without a deal, officials warn the government will run out of money as early as next week, which would upend the economy and financial markets.

“Any impediments in the future to a smooth transmission of the deal could still trigger risk reduction,” IG’s Yeap Jun Rong said in a report.

Also on Wednesday, an official Chinese survey of manufacturers found activity contracted in May due to weak demand from global and domestic consumers.

The Shanghai Composite Index fell 0.7% to 3,200.30 and the Nikkei 225 in Tokyo fell 1.4% to 30,888.52. The Hang Seng in Hong Kong fell 2.2% to 18,178.14.

The Kospi in Seoul fell 0.2% to 2,580.53 and the S&P-ASX 200 in Sydney fell 1.2% to 7,123.50.

The Indian Sensex opened 0.5% lower at 62,629.41. New Zealand rose while Southeast Asian markets also declined.

On Wall Street, the S&P 500 gained 4,205.52, near its highest level in nine months.

The Dow Jones Industrial Average slipped 0.2% to 33,042.78. The Nasdaq composite rose 0.3% to 13,017.43.

Uncertainty surrounding US government debt adds to market concern over signs of a slowdown in global economic activity following interest rate hikes.

Biden and McCarthy are trying to persuade lawmakers to back the deal in a plenary vote on Wednesday. Some lawmakers oppose the spending cuts in the plan while others want deeper cuts.

Even without a default, all the partisan tightrope politics could further erode trust in the US government. This could trigger a further downgrade in its credit rating, following Standard & Poor’s downgrade in 2011.

China’s economic recovery has been weaker than some businessmen and investors expected.

A monthly Purchasing Managers’ Index released by the national statistics agency and an industry group fell to 48.4 from 49.2 in April on a 100-point scale on which numbers below 50 show a decline in l ‘activity. Manufacturers were hurt by weak global demand and a slower-than-expected recovery in Chinese consumer spending.

Traders are bracing for another possible increase in the Federal Reserve’s key rate at its next meeting in two weeks, but hope it will be the last of this cycle.

A report on Tuesday morning showed that US consumer confidence is down and remains well below pre-pandemic levels. Housekeeping is one of the main pillars forcing investors to push back their predictions of a coming recession for another three to six months.

In energy markets, benchmark U.S. crude fell 19 cents to $69.27 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell from $3.21 on Tuesday to $69.46. Brent crude, the price basis for international oil trade, fell 18 cents to $73.53 a barrel in London. It sank $3.53 the previous session to $73.54.

The dollar fell to 139.67 yen from 139.87 yen on Tuesday. The euro retreated to $1.0695 from $1.0719.

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