Debt Ceiling Concerns Weigh on Investor Sentiment

  Stock Market Today delivers all of the latest stock market news and updates before, during, and after trading days close. Additionally, you'll get ongoing analysis of which stocks to buy or watch. Investors were wary on Monday as talks to increase the debt ceiling remained deadlocked with only 10 days until it could run dry and force the government to operate without money. 1. China’s Stock Markets Are Mixed After an unpredictable month that saw falling oil prices and China having to close its stock markets twice within days, followed by one of its worst starts since 2006 on the S&P 500 index, investors in American markets are looking at China with mixed feelings - fear and interest alike. Although Shanghai Composite Index experienced its worst week ever thus far in 2021 and lost almost 18% for 2019, Chinese stocks still hold important roles to play globally. In countries like the United States, where half of urban residents own stocks and equity assets are an essential component of household wealth, dramatic stock market crashes can have severe economic repercussions. Household spending may decline significantly and companies may struggle to raise investment funds. By comparison, in China only a small fraction of corporate financing comes through equity channels; instead most firms prefer bank loans or retained earnings as sources for raising capital. China's stock markets may not be as economically sensitive to short-term fluctuations as those found in the United States; nonetheless they still play a vital role in driving its economy forward. Therefore, Chinese authorities have taken measures to open its markets up to overseas investors through Stock Connect programs with Hong Kong and Singapore as well as developing relationships with foreign exchange regulators that enable trading of Chinese stocks on foreign exchanges. ChiNext board in Beijing represents an effort by the government to encourage small and medium-sized enterprises (SMEs) to raise capital through this route, with hopes that this board can assist emerging industries as well as providing much-needed financing sources for SMEs. It will be interesting to observe how the stock market reacts when trading begins this week on this new exchange platform. 2. Japan’s Stock Markets Reached Thirty-Three-Year Highs Japan's stock markets reached thirty-three-year highs on Tuesday as investors flooded in, fuelled by a weak yen and strong earnings season. The Nikkei 225 Stock Average reached 31,000 for the first time since 1990; Topix index also hit generational peaks. Nikkei's rise was driven by the manufacturing sector's rebound, with manufacturing now experiencing stronger growth than at any point during this decade. Additionally, banking systems across Japan are performing well and economic recovery has started in earnest; furthermore, Japan's weak currency has helped expand exports further and increase company profitability. Recent diplomatic thawing between Japan and its Western allies may open the way for increased trade and investment, which in turn may benefit certain sectors. Meanwhile, Japan's opening up to foreign investors and shareholders has attracted considerable attention, as the nation strives for better corporate governance standards. For example, leading chipmakers such as Taiwan Semiconductor (TSM - Free Report), Samsung, and Micron (MU - Free Report) have recently invested in Japan - an indication of Japan becoming more competitive in global semiconductor market competition. While both Nikkei and Topix markets have shown significant gains recently, not everyone is convinced this rally will last. Japanese history shows us that booms in their market can often be followed by busts; for example, it took 33 years for Nikkei levels to reclaim those reached in 1990 and it remains 20% below its peak point today. Market players have become concerned that negotiations on raising the US debt ceiling remain at a standstill, leading them to demand higher yields from short-dated Treasuries as a hedge against potential missed debt payments. Some investors are seeking safety in sovereign bonds; their popularity has also grown. Investors also consider how inflation in Japan may help alleviate its debt load and are keeping tabs on its progress. 3. European Stock Markets Were Mixed After receiving mixed corporate earnings reports, investors remained focused on developments surrounding the debt ceiling crisis and its possible consequences on global economies and financial markets. Stocks across Europe continued their downward trend amid disappointing earnings from several companies and signs of strain on banks following high-profile bank failures in the U.S. and elsewhere. Traders expressed particular anxiety regarding possible deposit flight that could further compound these difficulties for banks. On Monday, President Joe Biden and House Speaker Kevin McCarthy met to negotiate an increase to the nation's debt limit. Both parties reportedly called the discussions productive; however, no deal has yet been struck and investors fear a government default could bring about global financial chaos. Banking stocks took a sharp drop following reports that Phoenix-based PacWest Bancorp may sell assets, fueling fears of further bank distress as investors withdraw funds from troubled lenders, leading to further credit difficulties and foreclosures. Shares of Western Alliance Bancorp fell 4.4%. Energy stocks saw energy industry companies rally as crude oil prices continued their climb. BP and Exxon Mobil both registered gains of more than two percent while shares of Chevron declined nearly one percent. Furthermore, two reports released showed U.S. new-home sales increased in May while business activity expanded more than ever since last June. Investors weighed in on comments by Federal Chairman Jerome Powell, who noted that economic recovery has been slower than expected. His remarks led to speculation that the Fed might reduce interest rates later this year in response to slow economic growth and rising inflation; however, analysts advise against such action since doing so could worsen economic weakness further while depressing housing prices further. For more stock market updates visit our Stock Market Today page; it contains updates before each trading session begins and after markets close. 4. Asian Stock Markets Are Mixed Resumption of debt ceiling talks has brought new hope but has also highlighted widening partisan divisions; White House insistence that Congress cut social programs before increasing borrowing limits resulted in less than 0.1% appreciation on Monday as a result. Asia markets were mixed on Tuesday as investors watched negotiations and anticipated an U.S. economic update expected to show growth slowing, although Shanghai and Hong Kong saw declines while Tokyo and Sydney advanced. Oil prices also increased. Investors eagerly anticipated quarterly earnings reports from some of the region's largest corporations such as Coca-Cola and Toyota Motor, with many analysts believing the reports would provide insight into how strong economic recovery has been thus far, prompting the Federal Reserve to postpone raising interest rates at its meeting later this month. After reaching an all-time high on Friday, Europe's FTSE 100 struggled for momentum after making history. Banks and miners were among the leading decliners as investors responded negatively to U.S. debt ceiling turmoil as it dampened investor enthusiasm and the outlook for European monetary policy. Furthermore, traders remain concerned over bank health in America following several high-profile bank failures like PacWest Bancorp's. Japan saw the Nikkei 225 drop 0.6% while Australia's S&P/ASX 200 remained flat. Technology stocks such as Advantest and Screen Holdings led gains while consumer goods makers such as Shenzhen Leoking Environmental and Zhejiang Extek Technology both experienced declines of over 10% on their debut dates.