European stocks fell on Wednesday, with the US debt ceiling deadline weighing on investors as policymakers in Washington failed to agree on a deal to increase the nation’s spending limit.

Europe’s region-wide Stoxx 600 fell 0.7 per cent and France’s CAC 40 shed 0.6 per cent In the first hour of trade.

The moves come after US president Joe Biden and four members of Congress on Tuesday were unable to hash out a deal for raising the nation’s debt ceiling and avert an unprecedented government default.

Officials such as Treasury Secretary Janet Yellen have warned the US could default on its debt as early as next month if lawmakers fail to reach a compromise, with the looming deadline prompting Biden to cut short his upcoming overseas trip.

Yet US futures were up, with contracts tracking Wall Street’s benchmark S&P 500 rising 0.2 per cent while those tracking the tech-heavy Nasdaq 100 gained 0.1 per cent ahead of the New York open.

“Markets will start to price in debt ceiling concerns towards mid-June, when it becomes apparent that the negotiations are likely to stretch to the last minute and political accidents can happen,” said Mohit Kumar, chief Europe financial economist at Jefferies.

Government bonds also steadied from the previous sessions, with the yield on interest rate sensitive two-year Treasury notes rising 0.01 percentage points to 4.08 per cent. The yield on the benchmark 10-year note fell 0.02 percentage points at 3.53 per cent. Bond yields rise when prices fall.

The dollar index, which tracks the currency against a basket of six peers, gained 0.3 per cent.

Meanwhile, traders in Europe await the release of the eurozone’s final harmonised index of consumer prices for April, with analysts forecasting a slight increase in the annual rate to 7 per cent, up from 6.9 per cent in March.

However, policymakers will welcome the forecasted dip in core inflation, which excludes food and energy costs and offers a better gauge of underlying price pressures.

The European Central Bank slowed the pace of its rate increases this month, lifting its deposit rate by a quarter of a percentage point to 3.25 per cent, but said it had more ground to cover.

Asian stocks followed US markets, with China’s CSI 300 shedding 0.5 per cent and Hong Kong’s Hang Seng index falling 2.3 per cent.

Japan’s Topix bucked the trend, rising 0.3 per cent, following stronger-than-expected gross domestic product figures.

Japan’s economy grew at an annualised rate of 1.6 per cent in January to March from the quarter before, outpacing economists’ expectations of a 0.7 per cent gain, on the back of a post-Covid recovery in household spending.

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