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

London (AFP) - World stock markets mostly dropped Tuesday on the eve of key inflation data in the United States, while traders also tracked President Joe Biden’s efforts to raise the US debt ceiling.

London stocks fell into negative territory in morning deals as investors returned from a long holiday weekend marking the coronation of King Charles III.

Frankfurt and Paris both accelerated losses in early afternoon eurozone trade, after a largely downbeat Asian session as investors awaited inflation data that will shape the Federal Reserve’s monetary policy outlook.

The dollar wobbled following strong gains in the wake of Friday’s solid US labour market figures, while oil prices dropped on Chinese data suggesting that recovery in the world’s number two economy was still taking time.

Focus is now on Wednesday’s consumer price index report for April and the following day’s wholesale prices data.

- Fed interest-rate plans -

“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.

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

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

“Investors await tomorrow’s release of inflation numbers in the hope that a clearer picture will start to emerge regarding the Federal Reserve’s stance in the second half of the year,” added ActivTrades analyst Ricardo Evangelista.

“Last week the US central bank hiked rates for what many believe will be the last time in the current cycle and tomorrow’s release of CPI figures could reinforce that scenario, should core inflation start to drop.”

Traders are also keeping tabs on Washington as Biden prepares to talk to congressional leaders, with a debate raging on raising the nation’s 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.

Markets remain mindful over last week’s upheaval in the US banking sector, which hammered financial stocks.

In Asia on Tuesday, Hong Kong and Shanghai equities sank as Chinese data showed April exports rising more than expected but slowing from March, while imports plunged far more than expected.

Tokyo was the outlier, jumping on strong Japanese earnings.

- Key figures around 1115 GMT -

London - FTSE 100: DOWN 0.4 percent at 7,747.43 points

Frankfurt - DAX: DOWN 0.2 percent at 15,915.46

Paris - CAC 40: DOWN 0.8 percent at 7,380.05

EURO STOXX 50: DOWN 0.3 percent at 4,336.91

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)

New York - Dow: DOWN 0.2 percent at 33,618.69 (close)

Euro/dollar: DOWN at $1.0981 from $1.1004 on Monday

Pound/dollar: DOWN at $1.2615 from $1.2618

Dollar/yen: DOWN at 135.04 yen from 135.10 yen

Euro/pound: DOWN at 87.05 pence from 87.21 pence

West Texas Intermediate: DOWN 0.9 percent at $72.47 per barrel

Brent North Sea crude: DOWN 1.0 percent at $76.33 per barrel