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Meanwhile, investors are demanding higher premiums for holding US bonds, especially those at the greatest risk of default, and politicians have little time left to prevent a catastrophic default. The yield on four-week Treasury bonds fluctuated at 5.47% on Tuesday, resulting in an increase of over 60 basis points since the beginning of May.
In Europe, the rout of luxury goods producers, including Hermes International and LVMH, led to a decline in the Stoxx 600 index, following the publication of warnings by Deutsche Bank AG analysts who are confident that the sector is overbought and valuations are inflated. European markets also faced sell-offs on news that manufacturing activity in the region contracted at the fastest pace since the pandemic.
President Joe Biden and House Speaker Kevin McCarthy held another round of negotiations, calling them productive. However, no agreement has been reached. On June 1, Treasury Secretary Janet Yellen will be forced to declare a default as there will be no funds to pay the debts to the US government and the Treasury. Even if Biden finds common ground with McCarthy, the deal still needs to be approved by Congress.
Of course, default is unlikely, as Democrats and Republicans will reach an agreement, but it does not make it easier for the markets. The longer the negotiations drag on, the more significant the economic damage will be.
Meanwhile, commodities have become cheaper, and the US dollar and yen have strengthened. In addition, concerns are growing about China's slow recovery after the pandemic, which is harming iron ore and copper prices. However, oil is showing growth for the second consecutive day.
The Tokyo Topix index fell for the first time in eight days, with semiconductor company stocks declining on news that stricter export controls will take effect in Japan on July 23.
As for the S&P 500 index, it is trading within a channel, with a slight advantage for bears. However, bulls still have a chance to develop the trend. Bulls need to stay above $4,185, pushing the price higher to $4208. In addition, they need to control $4,229, which will strengthen the new bullish market. If the price drops amid weak US statistics, bulls should protect $4,185 and $4,150. Breaking through this level, the trading instrument may return to $4,116 and $4,090.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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