Berliner Boersenzeitung - Markets struggle but tech shares soar over AI

Wall Street opened mixed with the Dow and S&P 500 slumping after ratings agency Fitch placed the country's AAA-ranked credit on "rating watch negative" amid the stalled talks on raising the US debt ceiling.

Clifford Bennett, chief economist at ACY Securities, warned the stakes are high in the event of a default.

"Market shock and ramifications will be profound and extend outward over several years," Bennett said.

"US bond prices and bonds around the world will drop. The US dollar will be strong at first on safe-haven and ever higher yields long term. The equity market can simply drop like a stone."

Fitch said its warning on the US rating "reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit" ahead of a looming deadline.

The announcement raises the possibility of a first ratings downgrade since another ratings agency, S&P, did so during a similar standoff in 2011.

The US Treasury Department has said June 1 is the "X-date" when the government will run out of money, triggering a default with likely devastating economic consequences.

Talks earlier this week between President Joe Biden and Republican House Speaker Kevin McCarthy were described as "productive" but the two sides have made little progress since, with Republicans demanding spending cuts but Democrats calling for a "clean" increase.

Analysts said that while there is a broad expectation an agreement will ultimately be reached, investors were growing increasingly agitated and risk-averse.

Worries over the possibility of more Federal Reserve interest rate hikes were also dampening sentiment.

Minutes from the Fed's most recent policy meeting showed officials split on what to do at their June gathering, with inflation still more than double a two percent target.

But the tech-rich Nasdaq soared following US chip company Nvidia's positive earnings report Wednesday, which showed the artificial intelligence trend is fuelling demand for its sophisticated chips.

Nvidia's shares surged by almost 25 percent after Wall Street opened on Thursday.

- German recession -

In Europe, the Frankfurt DAX traded marginally lower, while London's FTSE 100 was down 0.7 percent and the Paris CAC 40 shed 0.2 percent in afternoon deal.

German data showed that Europe's biggest economy entered recession in the first quarter, contracting by 0.3 percent after shrinking by 0.5 percent in the last three months of 2022.

The European single currency recoiled to a two-month low at $1.0714 before clawing back ground.

"German sentiment took a hit this morning," Scope Markets analyst Joshua Mahoney told AFP, noting German's recession was led by declining household consumption and government spending.

"While many will see this contraction as a warning sign that Europe's largest economy will drag the region lower, the optimists will also look at these figures as a sign that higher rates are cooling consumption which will ultimately drive inflation lower."

Most Asian equities also sank on fears over the prospect of a US default, while oil prices retreated on profit-taking after three straight sessions of gains.

- Key figures around 1345 GMT -

New York - Dow: DOWN 0.3 percent at 32,687.61 points

Frankfurt - DAX: DOWN 0.1 percent at 15,822.52

London - FTSE 100: DOWN 0.7 percent at 7,572.36

Paris - CAC 40: DOWN 0.2 percent at 7,235.78

EURO STOXX 50: UP 0.2 percent at 4,272.28

Tokyo - Nikkei 225: UP 0.4 percent at 30,801.13 (close)

Hong Kong - Hang Seng Index: DOWN 1.9 percent at 18,746.92 (close)

Shanghai - Composite: DOWN 0.1 percent at 3,201.26 (close)

Euro/dollar: DOWN at $1.0712 from $1.0750 on Wednesday

Pound/dollar: DOWN at $1.2337 from $1.2365

Dollar/yen: UP at 139.64 yen from 139.47 yen

Euro/pound: DOWN at 86.84 pence from 86.94 pence

West Texas Intermediate: DOWN 2.8 percent at $72.23 per barrel

Brent North Sea crude: DOWN 2.0 percent at $76.30 per barrel

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(L.Kaufmann--BBZ)