US default fears, rising oil prices hound global stocks

NEW YORK, United States — Stock markets tumbled on Tuesday as traders tracked a strengthening dollar, high oil prices, the political gridlock in Germany and rising fears about a possible US debt default.

Brent crude oil briefly jumped above $80 a barrel for the first time in almost three years on expectations for surging demand and concerns about tight supplies as the world slowly emerges from the pandemic crisis.

Wall Street finished decisively lower, with the S&P 500 losing 2% and the tech-heavy Nasdaq falling nearly 3% as Treasury Secretary Janet Yellen urged Congress to quickly raise the debt ceiling to keep the US government from defaulting.

"The prospect of higher energy prices, fueling inflation, and rises in bond yields that appear to be preempting tighter monetary policy by central banks, have prompted widespread selling across global stock markets," said Chris Beauchamp, analyst at IG. 

There were "few safe havens," he said.

Analysts attributed disproportionate declines in tech stocks to rising Treasury bond yields, as higher interest rates generally hit tech companies because of their greater reliance on debt to fund growth.

Chief Market Strategist at TD Ameritrade JJ Kinahan credited the jump in yields to "a combination of uncertainty on Capitol Hill, coupled with all but the certainty that borrowing costs will increase."

Republicans in Washington have blocked a Democratic move to raise the US borrowing limit, and Yellen warned that without an agreement, the United States is likely to run out of cash around October 18.

Observers believe that would spark a massive financial crisis, but Republicans say they will not pay for Democrats' spending plans.

The brewing crisis comes as Democrats fight to pass President Joe Biden's multi-trillion-dollar infrastructure and social spending bills, with party infighting fueling concerns that the president's agenda could end up stillborn.

Amid the turmoil, the US government could shut down later this week unless Congress approves a temporary budget measure by Thursday.

Meanwhile in Germany, Europe's biggest economy, was in focus as it headed for weeks, if not months, of protracted coalition haggling following weekend elections. 

Chancellor Angela Merkel's conservatives have insisted on trying to form a government even after losing to the Social Democrats in a tight race.

The German DAX and French CAC indexes were down by about 2%, while London was off 0.5%.

Energy crunch

In Britain, army tanker drivers were put on standby to deliver petrol as the country battles a fuel crisis.

The British pound dipped more than 1% against the dollar to its lowest level since January, then recovered.

Bank of England governor Andrew Bailey hinted Monday that the central bank would refrain from aggressive monetary policy tightening despite elevated inflation.

"The pound took a pounding after governor Bailey implied that the BoE will not aggressively tighten its belt, as the UK is facing stagflation risks," ThinkMarkets analyst Fawad Razaqzada told AFP.

China was also facing an energy crunch, with Goldman Sachs lowering its annual growth forecast for the world's second-biggest economy.

The country has also been in the spotlight over concerns about the possible collapse of troubled developer Evergrande.