Traders pared bets on a Federal Reserve rate hike in June to 25 per cent as Jerome Powell signaled a pause. Stocks fell amid a slide in banks and concern U.S. lawmakers are struggling to reach a deal to prevent a default.

The S&P 500 halted a two-day rally, failing to stay above the closely watched level of 4,200, as a Republican representative said bipartisan talks in Washington are on a “pause.” When asked by reporters about new debt-ceiling meetings, House Speaker Kevin McCarthy did not answer the question.

“With the walkout of Republican debt-ceiling negotiators hindering chances for a viable conclusion before the upcoming X-date,” that would weaken chances for the Fed to raise rates on June 14,” said Quincy Krosby, chief global strategist at LPL Financial.

The US$3.2 billion SPDR S&P Regional Banking exchange-traded fund slumped almost 2 per cent on a news report that Treasury Secretary Janet Yellen told the chiefs of large lenders that more mergers may be needed.

'REASONABLE ODDS'

Stocks are primed for a precipitous drop if the U.S. fails to raise the debt limit and delays government payments. 

That’s the warning from a team of UBS strategists. Although it’s unlikely, if the U.S. formally defaults and delays all payments beyond principal payments for a week, the S&P 500 will fall as much as 20 per cent toward 3,400, the team led by Jonathan Pingle said.

“At the moment, we see reasonable odds, roughly 50 per cent, that Congress passes a short-term extension. However given the two sides ruling that out, our assessment could be very wrong,” said the strategists.  

Corporate News

• James Gorman, who transformed Morgan Stanley after it nearly collapsed during the global financial crisis, plans to step down as chief executive officer within the next year and assume the role of executive chairman.
• Deere & Co. raised its full-year profit forecast amid strong demand for farm equipment and the easing of supply chain woes that have dogged companies since the pandemic.
• Foot Locker Inc. added more evidence that U.S. consumers are pulling back on spending as the shoe retailer cut its annual sales forecast.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.2 per cent
• The Dow Jones Industrial Average fell 0.3 per cent
• The MSCI World index rose 0.1 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.3 per cent to US$1.0807
• The British pound rose 0.3 per cent to US$1.2451
• The Japanese yen rose 0.5 per cent to 137.99 per dollar

Cryptocurrencies

• Bitcoin rose 0.4 per cent to US$26,842.89
• Ether rose 0.8 per cent to US$1,811.74

Bonds

• The yield on 10-year Treasuries advanced five basis points to 3.70 per cent
• Germany’s 10-year yield declined two basis points to 2.43 per cent
• Britain’s 10-year yield advanced four basis points to 4.00 per cent

Commodities

• West Texas Intermediate crude was little changed
• Gold futures rose 0.9 per cent to US$1,996.80 an ounce