London (AFP) - Global stock markets wobbled Thursday as the US debt standoff dragged on and Germany entered recession, but tech shares surged after US chip firm Nvidia reported bumper earnings thanks to the AI boom.
Wall Street was trading mixed with the Dow 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 Global, 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 to the debt limit.
Analysts said that while there is a broad expectation an agreement will ultimately be reached, investors were growing increasingly agitated and risk-averse.
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.
The firm is "one of the handful of tech stocks helping drive this year’s rally in the major indexes", said analyst Alex Coffey of TD Ameritrade in a briefing note.
Nvidia's shares surged by almost 25 percent after Wall Street opened on Thursday, lifting its market value close to $1 trillion.
The firm's "results and guidance upgrade has served to lift the rest of the chip sector with gains for AMD and TSMC, while Microsoft is also seeing some decent gains", said Michael Hewson, chief market analyst at CMC Markets UK.
German recession
In Europe, markets slid with the Frankfurt DAX shedding 0.3 percent, London's FTSE 100 dropping 0.7 percent and the Paris CAC 40 slipping 0.2 percent.
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 1530 GMT -
New York - Dow: DOWN 0.5 percent at 32,627.08 points
Frankfurt - DAX: DOWN 0.3 percent at 15,793.80 (close)
London - FTSE 100: DOWN 0.7 percent at 7,570.87 (close)
Paris - CAC 40: DOWN 0.2 percent at 7,229.27 (close)
EURO STOXX 50: UP 0.1 percent at 4,269.64 (close)
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 $1.0720 from $1.0750 on Wednesday
Pound/dollar: DOWN at $1.2323 from $1.2365
Dollar/yen: UP at 139.81 yen from 139.47 yen
Euro/pound: UP at 87.01 pence from 86.94 pence
West Texas Intermediate: DOWN 3.0 percent at $72.10 per barrel
Brent North Sea crude: DOWN 2.0 percent at $76.15 per barrel
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