President Joe Biden is to meet congressional leaders ahead of talks to raise the US debt ceiling

London (AFP) - Stock markets dropped Tuesday as investors await key US inflation data and track President Joe Biden’s battle with Republicans over the debt ceiling.

Wall Street indices were down in morning trading, while major European stocks closed flat or in negative territory.

London stocks fell into the red as investors returned from a long holiday weekend marking the coronation of King Charles III.

Traders were waiting for Wednesday’s US inflation data that will shape the Federal Reserve’s interest-rate policy.

A drop in the inflation reading in recent months has fanned hopes that the Federal Reserve will soon pause its tightening campaign and even begin cutting rates by the end of the year, with the banking crisis reinforcing that view.

“US inflation data… will play a key role in shaping the Fed’s interest rate plans moving forward,” said Nigel Green, head of financial advisory firm deVere Group.

After lifting borrowing costs last week, officials hinted at a possible hold at their June meeting.

“We’ve finally reached the point at which the Federal Reserve may be at the end of its tightening cycle and we can start to look forward to when it can feasibly begin to ease policy in order to offset any shock to the economy,” said Craig Erlam, senior market analyst at trading platform OANDA.

The Bank of England will also announce its latest monetary policy decision on Thursday, with analysts expecting another hike with UK inflation holding stubbornly above 10 percent.

Traders are also keeping tabs on Washington as Biden prepares for talks Tuesday with Republican House Speaker Kevin McCarthy and other congressional leaders on raising the debt ceiling.

There are worries that lawmakers will fail to reach a deal to increase the amount the country can borrow to meet its repayment obligations, with right-wing Republicans determined to secure spending cuts.

Treasury Secretary Janet Yellen has warned the government could hit its limit by the start of June, adding that “financial and economic chaos would ensue” if a deal was not reached.

- Sweden real estate worries -

In Europe, real estate shares were dragged down by one of Sweden’s biggest commercial landlords.

There were signs of Sweden’s property crisis worsening as SBB took a series of steps to save cash, including scrapping a planned share sale, and continued focus on selling assets.

Its shares fell more than 24 percent on Tuesday, a day after the real estate group was downgraded to “junk” status by credit agency S&P.

The rapid rise in central bank rates over the last year has led to a sharp drop in real estate prices in Sweden, with prices down 12 percent from their peak last February.

“SBB is a reminder that we have a few highly indebted real estate companies that have issues with their balance sheets that need to be addressed,” said Esbjorn Lundevall, equity strategist at Swedish bank SEB.

Shares in Switzerland’s biggest bank, UBS, fell after it announced that Credit Suisse CEO Ulrich Koerner would join its leadership team when it completes the merger with its fallen domestic rival.

Asian stock markets were largely downbeat after data showed a steeper-than-expected drop in Chinese imports, suggesting recovery from zero-Covid policies in the world’s number two economy is not yet as strong as had been hoped.

Although data showed that April exports rose more than expected, they grew at a slower pace from March.

Oil prices also fell Tuesday on demand concerns, after a two-day surge.

“Oil traders clearly remain deeply concerned about the turbulence in the US regional banks and what the consequences could be for the US economy, alongside the ripple effects elsewhere,” said Erlam.

- Key figures around 1530 GMT -

New York - Dow: DOWN 0.1 percent at 33,586.73

EURO STOXX 50: DOWN 0.6 percent at 4,323.09

London - FTSE 100: DOWN 0.2 percent at 7,764.09 (close)

Frankfurt - DAX: FLAT at 15,955.48 (close)

Paris - CAC 40: DOWN 0.6 percent at 7,397.17 (close)

Tokyo - Nikkei 225: UP 1.0 percent at 29,242.82 (close)

Hong Kong - Hang Seng Index: DOWN 2.1 percent at 19,867.58 (close)

Shanghai - Composite: DOWN 1.1 percent at 3,357.67 (close)

Euro/dollar: DOWN at $1.0954 from $1.1004 on Monday

Pound/dollar: DOWN at $1.2614 from $1.2618

Dollar/yen: UP at 135.15 yen from 135.10 yen

Euro/pound: DOWN at 86.84 pence from 87.21 pence

West Texas Intermediate: DOWN 1.8 percent at $71.84 per barrel

Brent North Sea crude: DOWN 1.7 percent at $75.68 per barrel