US stocks make gains but debt ceiling remains in focus

US stocks were subdued on Monday as investors awaited news about debt ceiling negotiations and assessed fresh data pointing to a cooling economy.

The tech-heavy Nasdaq Composite index rose 0.7 per cent, extending its gains from the previous week, while Wall Street’s benchmark S&P 500 added 0.3 per cent.

The moves in US equities came as traders were looking ahead to a breakthrough between the White House and Republican lawmakers in talks to raise the federal borrowing limit and avoid a national default, ahead of President Joe Biden’s meeting with Congressional leaders on Tuesday.

The KBW regional banking index, which has been buffeted by the failures of three lenders since March, added 3 per cent.

“The stock market is stuck until we reach a debt-ceiling resolution and until we see more clarity from the regional banking sector, which are the two factors weighing on stocks right now,” said Brad Bernstein, managing director at UBS Wealth Management in the US.

Fresh economic data on Monday added to signs that the Federal Reserve’s aggressive interest rates policy has begun to take effect. The New York Fed said its index measuring manufacturing activity in the state plummeted from 10.8 to minus 31.8 in May, far below analysts’ forecasts of minus 3.8. However, economists urged caution in interpreting the data, saying it could have been influenced by seasonal factors.

The moves in US equities continue a pattern of growth stocks outpacing value stocks since the start of the year, as the Nasdaq Composite has added 19 per cent, compared with an 8.1 per cent advance for the S&P 500.

“Big established technology names didn’t disappoint during the earnings season, and for the most part, offered guidance that was reassuring, something financial markets needed to hear,” said Quincy Krosby, chief global strategist for LPL Financial.

Traders also awaited Tuesday’s release of US retail sales data for April, which will offer a snapshot on the health of the American consumer amid cooling inflation and higher borrowing costs.

The dollar fell 0.3 per cent against a basket of six other currencies, despite data last week showing US consumer expectations for long-term inflation had reached a 12-year high.

In Europe, the region-wide Stoxx 600 rose 0.2 pre cent, while France’s CAC 40 and Germany’s Dax ended the day flat, having steadied after trading down during much of the session.

Eurostat, the EU statistics agency, reported the eurozone’s industrial production fell by a larger than expected 1.4 per cent year on year in March, after rising 2 per cent the previous month, suggesting the European Central Bank’s tightening campaign was cooling the region’s economy faster than expected.

“It’s still not enough for the ECB to be convinced that its job is done,” said Mohit Kumar, chief European economist at Jefferies. “They still need to hike more to fight inflation, but the economic data indicates that they are not far from being done.”

Meanwhile, Germany said its wholesale price index recorded its first year-on-year drop since December 2020.

Asian stocks rose, with China’s CSI 300 climbing 1.6 per cent and Hong Kong’s Hang Seng index adding 1.8 per cent. China’s renminbi fell on Monday to its weakest level against the dollar in two months.