Stocks skittish on mixed European data, debt standoff

Biden said he is 'optimistic' a deal on raising the debt limit can be reached before the US government defaults. ©AFP

New York (AFP) - Global stocks moved indecisively Monday following mixed European economic data as the ongoing standoff in talks on averting a first-ever US default kept equities from gaining traction.

Asian stock markets kicked the week off with gains amid "growing hopes that the Democrats and Republicans will reach a deal to avert the disastrous scenario of a government default" in the world's biggest economy, said Victoria Scholar, head of investment at Interactive Investor.

Biden said Sunday that "I really think there's a desire on their part as well as ours to reach agreement" ahead of fresh talks Tuesday with Republican leaders, including House Speaker Kevin McCarthy.

But US Treasury Secretary Janet Yellen reiterated that new data reinforced her previous warning of a possible US debt default on June 1 if Congress fails to raise the ceiling on borrowing.

"Until we have Republicans and Democrats move a little on tax increases, increasing the debt ceiling, or federal spending, any optimism is premature," said market analyst Edward Moya at OANDA trading platform.

Still, Wall Street equities finished modestly higher following a choppy session, with gains by beaten-down regional banks helping support the market.

European markets fell in the red after starting the day in the green.

Meanwhile, sentiment was dented after a key manufacturing survey showed a sharp drop in activity.The New York Fed Empire State Manufacturing Survey plunged from 10.8 in April to -31.8 points in May.The figure was much worse than expected and indicates a contraction.

"This is the type of data that should give the Fed some pause about raising rates further," said Briefing.com analyst Patrick O'Hare.

The US Federal Reserve has repeatedly raised interest rates to tame high inflation, which analysts have worried may ultimately push the economy into recession.

Elsewhere, European gas prices reached the lowest levels in almost two years as concerns about tight supplies continued to ease heading into the summer.

In Brussels, the European Commission boosted its 2023 economic growth outlook for the eurozone -- but also raised the inflation forecast for the single currency area.

"The European economy is in better shape than we projected last autumn," said the EU commissioner for the economy, Paolo Gentiloni, said.

"Thanks to determined efforts to strengthen our energy security, a remarkably resilient labor market and easing supply constraints, we avoided a winter recession and are set for moderate growth this year and next."