ASX stumbles as major commodity prices fall; Wall Street drifts

Tuesday marked the US stock market’s first trading since President Joe Biden and House Speaker Kevin McCarthy struck a deal over the weekend to allow the US government to borrow more money, which would let it avoid a default on its debt. They now must convince Congress to approve it before the US government runs out of cash to pay its bills, which could happen as soon as Monday.

Some on Capitol Hill are unhappy about the deal’s details, and Biden and McCarthy are both working to gather votes. The wide expectation on Wall Street has been for Washington to reach a deal in the 11th hour because failure would likely mean tremendous pain for the economy and financial markets.

Even if there is no default, though, all the partisan brinkmanship could erode more faith and trust in the US government. That could trigger another downgrade to its credit rating, following Standard & Poor’s rating cut in 2011.

Beyond the drama around the nation’s debt limit, financial markets have been battling a long list of concerns. The economy is slowing, inflation is still high and interest rates may be heading even higher, which would further tighten the reins on the economy and financial markets.

The worries are also global, with China’s economic recovery weaker than expected following its relaxation of anti-COVID restrictions.

US stocks have rallied despite such worries recently after companies reported drops in profit for the start of the year that weren’t as bad as feared. And at the centre of it has been Wall Street’s growing frenzy over AI.

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Nvidia, whose chips are helping to power the tech world’s newest rush, rose another 3 per cent after already more than doubling so far this year. Last week, it gave a monster forecast for upcoming revenue as it described customers of all kinds racing to apply AI to their businesses.

Nvidia’s surge has its total value nearing $US1 trillion, a threshold passed by only the biggest stocks, including Apple. The huge gains are raising worries about another possible bubble sweeping the stock market. But evangelists say AI is the next big revolution to reshape the global economy.

Also helping to prop up Wall Street in recent weeks have been reports showing a resilient job market and other signals that the slowing economy may avoid a recession.

“I’m sure there’s going to be a lot of money to be made in AI for a select group of companies, but that’s not enough to lift the entire economy out of a potential recession here,” said Rich Weiss, senior vice president at American Century Investments.

A report Tuesday morning showed that confidence among consumers is falling and remains well below where it was before the pandemic, though it remains stronger than economists expected. That’s key because continued spending by households has been one of the main pillars forcing investors to push out their predictions for an upcoming recession by another three to six months.

With AP

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