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Asian markets sink as US debt talks stall
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Reporters wait outside the office of US Speaker of the House Kevin McCarthy on May 23, 2023, in Washington, DC as negotiations on the debt ceiling remained unresolved. (Getty Images/AFP/Win McNamee)
A
sian markets tracked losses in Wall Street on Wednesday as investors grow increasingly concerned about stalled US debt ceiling talks to avert a painful default.
The optimism that flowed through trading floors at the start of the week has given way to trepidation, with several Republicans questioning an early June deadline, and some even saying the country is nowhere near running out of cash anyway.
All eyes are now on Washington, where President Joe Biden and House Speaker Kevin McCarthy have had a number of meetings to find a path to lifting the borrowing limit from the current $31.8 trillion.
The two men said Monday that talks had been "productive" and were confident a deal would be coming.
Republicans have set cutting spending next year to 2022 levels as a "red line", but Democrats have so far refused to commit to that.
On Tuesday, Republican Representative Ralph Norman warned that McCarthy had said the two sides were "not anywhere near close" to an agreement.
The Speaker also tweeted: "With just 9 days left to go, Republicans remain the only ones in Washington who have actually done anything to lift the debt limit and avoid default."
However, White House Press Secretary Karine Jean-Pierre struck a more upbeat tone, saying: "We are seeing movement."
"Both sides have to understand that they're not going to get everything that they want."
The impasse comes as some Republicans say they do not believe warnings from the Treasury and Congressional Budget Office (CBO) that the coffers are about to run dry.
Treasury Secretary Janet Yellen said an agreement must be reached by June 1 otherwise the United States risks defaulting on its debt repayments, which most economists warn could spark turmoil in the global economy and markets.
The CBO, the Bipartisan Policy Center and banking giants including Goldman Sachs have also penciled in the first few weeks of next month as the period when the crisis could come to a head.
But House Majority Leader Steve Scalise said Tuesday he wanted to "see more transparency on how they came to that date" of June 1.
"It looks like they're hedging now and opening the door to move that date back."
And Texas Representative Chip Roy described warnings of a default as a "manufactured crisis", adding: "The fact is, we're not going to default on our debt.
"That's just completely false. We've got the money to do it."
SPI Asset Management's Stephen Innes said: "Beyond economics, the debt limit debate highlights the political polarization that persists in the US, and casts a cloud over the political process in Washington.
"The repeated brinkmanship could catch the eye of the rating agencies once again" after S&P downgraded the US credit rating during a similar standoff in 2011.
He added that back then, "the underlying issue was the worsening political polarization, and it's hard to argue that the process has done anything other than continue to worsen since 2011."
After the sell-off on Wall Street, Asia was also under pressure on Wednesday.
Hong Kong and Tokyo gave up more than one percent, while there was also hefty selling in Shanghai, Seoul, Sydney, Taipei, Singapore, Manila, Wellington and Jakarta.
Traders are also looking forward to the release of minutes from the Federal Reserve's most recent policy meeting, with hopes for an idea about its plans for next month's gathering.
Falling inflation and worries about the banking sector have fanned bets the US central bank will pause its tightening drive, but recent data pointing to a still-strong jobs market, as well as comments from top officials, have traders worried another hike is on the books.
