Global stocks sink before US Congress votes on deal to avoid debt default

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BEIJING (AP) — Global stock markets sank Wednesday ahead of a vote by the U.S. Congress on a deal to avert a government debt default, while a downturn in Chinese factory activity deepened, adding to signs that the world’s economic activity is weakening.

Markets in London, Shanghai, Paris and Tokyo retreated. Oil prices declined.

Wall Street’s benchmark S&P 500 index edged up less than 0.1% on Tuesday as President Joe Biden and Speaker Kevin McCarthy of the House of Representatives tried to line up votes to raise the amount the government is allowed to borrow. Officials warn the Treasury will run out of money as soon as next week, which would roil the economy and financial markets.

“Any upcoming obstacle to a smooth pass-through of the deal could still trigger some de-risking,” Yeap Jun Rong of IG said in a report.

On Wednesday, an official Chinese survey of manufacturers found activity contracted in May on weak global and domestic consumer demand.

In early trading, the FTSE 100 in London lost 0.1% to 7,514.18 and the CAC 40 in Paris sank 0.4% to 7,178.13. The DAX in Frankfurt retreated 0.3% to 15,868.35.

On Wall Street, futures for the S&P 500 and the Dow Jones Industrial Average were off 0.2% ahead of a vote by the full 435-member House on raising the government debt limit. Some legislators object to spending cuts in the plan while others want bigger reductions.

On Tuesday, the Dow slipped 0.2% and the Nasdaq composite rose 0.3%.

In Asia, the Shanghai Composite Index lost 0.6% to 3,204.56 and the Nikkei 225 in Tokyo fell 1.4% to 30,887.88. The Hang Seng in Hong Kong tumbled 1.9% to 18,234.27.

China’s economic recovery has been weaker than some businesspeople and investors hoped.

A monthly purchasing managers’ index issued by the national statistics agency and an industry group declined to 48.4 from April’s 49.2 on a 100-point scale in which numbers below 50 show activity declining. Manufacturers have been hurt by weak global demand and a slower-than-expected recovery in Chinese consumer spending.

The Kospi in Seoul retreated 0.3% to 2,577.12 and the S&P-ASX 200 in Sydney fell 1.6% to 7,091.30.

India’s Sensex lost 0.7% to 62,514.88. New Zealand advanced while Southeast Asian markets declined.

Uncertainty about U.S. government debt adds to market anxiety over signs global economic activity is slowing following interest rate hikes.

Even without a default, all the partisan brinkmanship in Washington could erode faith in the U.S. government. That could trigger another downgrade to its credit rating, following Standard & Poor’s rating cut in 2011.

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

A report Tuesday showed confidence among American consumers is falling and is well below where it was before the pandemic.

In energy markets, benchmark U.S. crude gained 36 cents to $69.10 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $3.21 on Tuesday to $69.46. Brent crude, the price basis for international oil trading, shed 44 cents to $73.32 per barrel in London. It sank $3.53 the previous session to $73.54.

The dollar declined to 139.81 yen from Tuesday’s 139.87 yen. The euro retreated to $1.0663 from $1.0719.