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Stock futures fall, currencies are in tight ranges

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Bloomberg – Stock futures for benchmark US and Asian stocks fell as currencies remained within tight ranges in a cautious start to trading on Monday, May 22 in Asia, as the risk of a debt default in Washington overshadowed markets.

Movements in most currencies in a group of 10 currencies were limited to 0.1% against the dollar. Contracts for the S&P 500 and Nasdaq 100 fell about 0.3% after the indicators posted small drops on Friday, May 19.

Amid global attention on the US debt ceiling and interest rate negotiations, Japanese and Australian stock futures edged lower and Hong Kong futures edged higher.

President Joe Biden and House Speaker Kevin McCarthy are scheduled to meet later Monday after a “productive” call between the two over the weekend.

However, Republican negotiators insist on a multi-year spending cap, complicating talks even as a default could come as early as June 1.

Traders remain steadfast on the Federal Reserve’s benchmark interest rate path, with bets for a June hike trimmed to 25% as Jerome Powell hinted at a pause. Minneapolis Fed President Neel Kashkari also said he might support a pause, Dow Jones reported.

Meanwhile, markets continue to be weighed down by tensions between China and the US and its allies. Beijing announced a ban on Micron Technology on Sunday, as Group of Seven leaders meet in Japan to press ahead with efforts to reduce dependence on China for critical supply chains.

The fall in the S&P 500 on Friday May 19 halted a two-day rally as it failed to break above the observed level of close to 4,200 points. The $3.2 billion SPDR S&P Regional Banking exchange-traded fund fell nearly 2% after a media report that Treasury Secretary Janet Yellen told the heads of major lenders that more mergers may be needed.

Stocks are poised to fall sharply if the US fails to raise the debt limit and delays government payments.

That’s the warning from the UBS strategist team. Although unlikely, if the United States formally defaults and delays all payments beyond principal payments for a week, the S&P 500 will fall by up to 20% towards 3,400, said the team led by Jonathan Pingle.

Read more at Bloomberg.com

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