US Stocks in the Red Ahead of House Vote on Debt Ceiling Suspension Agreement: Market Concerns and Analysis

Awaiting the House of Representatives’ vote on the debt ceiling suspension agreement, US stocks continued their decline, turning their main indicators in red, pending the effects of the new legislation, if approved, on the markets in the coming days.

At the end of trading on Wednesday, and before the announcement of the voting result, the Dow Jones Industrial Average fell by 0.40%, and the S&P 500 index lost nearly 0.60% of its value, while the loss in the Nasdaq index was 0.63% of its value at the beginning of the day. Although the three indices cut their losses during the last hour of trading.

And while the efforts of the US authorities, including the White House and US President Joe Biden, focused on sparing the largest economy in the world from the catastrophe of defaulting on its debts, stock investors began to realize that they would most likely be the first to pay the price of this agreement, when the US treasury expands in Issuing new bonds and treasury bills, to use the proceeds to pay off debts.

Some analysts believe that the issuance of these debt securities may cause a sudden depletion of the liquidity currently available in the US stock market, which caused a decline in the prices of most stocks during the past days, with the exception of the beginning of trading on the first day of the week.

On Wednesday, Stephen Blitz, chief US economist at investment research firm TS Lombard, warned in a note of “strong liquidity pressures” ahead.

William Watts, an expert in stock and bond markets, says that the exceptional measures taken by the Treasury Department, over the past five months, caused many of the government’s liabilities to carry over, reducing those liabilities from $580 billion to $58 billion.

“Once President Joe Biden signs the debt-ceiling deal into law, the Treasury Department will move to back up its accounts, and that means hitting the market with a flood of short-term T-bills,” Watts adds, in an article he wrote on Wednesday.

In Europe, stocks recorded their lowest level in two months today, Wednesday, as the volume of fears about a global slowdown in light of weak economic data from China, and uncertainty about the fate of the US debt ceiling agreement, exceeded the impact of optimism about the emergence of signs of declining inflation in some of the major economies of the euro area, according to it. For Reuters analysis.

The Stoxx 600 European stock index ended the day’s trading down 1.1%, after hitting its lowest level since March 30.

China-linked luxury goods and automakers led losses in sectors in Europe, after data showed factory activity in the Asian country contracted faster than expected in May, due to weak demand. China is Germany’s main trading partner.

And by the end of the last trading days of the month, the STOXX 600 index recorded the largest monthly decline this year, by 3.2%, after significant declines in several days, caused by the slowdown in the global economy, as well as fears that US lawmakers would be unable to reach an agreement that would avoid them defaulting on public debt.

Oil prices fell during trading on Wednesday, after data emerged showing that manufacturing activity in China contracted faster than expected in May, which in turn affected oil prices, which fell by close to 2.5%, before cutting their losses before the settlement date.

Upon settlement, Brent crude futures fell 88 cents, or 1.2%, to $72.66 a barrel, and US crude futures fell $1.37, or 1.97%, to $68.09 a barrel.

Oil prices fell by nearly 5% during Tuesday’s trading.

In a related matter, data from the Energy Information Administration showed today, Wednesday, that the production of US crude oil fields rose in March to 12.696 million barrels per day, which is the highest level since March 2020, when the Corona virus pandemic began to reduce global demand for energy. .

OPEC + meets on Sunday in Vienna to take a decision regarding the production policy of member states during the coming period.