Shares drop ahead of US debt ceiling vote

Global shares fell on Wednesday ahead of a crucial vote in Washington on the US debt ceiling, while commodities and the Chinese yuan came under pressure after data highlighted faltering growth in the world’s second-largest economy.

The MSCI All-World Index of global shares, which is heading for its first monthly decline since February, was down 0.4% in mid-morning trade in Europe (.MIWD00000PUS), largely due to declines across Asian markets.

Data showed China’s manufacturing activity fell more than expected in May, while services growth -- which has been one of the few bright spots in its patchy recovery -- slackened to its slowest pace in four months, reported Reuters.

For any investors hoping for a sustained bounce in Chinese growth after the elimination of stringent Covid restrictions late last year, the figures offered more evidence that the economy is losing steam, further dimming the global outlook.

The yuan dropped to its lowest since last November, when China was under public health restrictions. It was last down 0.5% at 7.124 per dollar, putting it on track for a 2.6% drop this month, following a series of weak readings on anything from industrial profits, to retail sales and loan growth.

In Europe, equities came under a third day of selling pressure. The regional STOXX 600 (.STOXX) hit two-month lows, led by declines in China-focussed luxury stocks like LVMH (LVMH.PA), Burberry (BRBY.L) and Swatch Group (UHR.S).

The dollar , which was up 0.5% against a basket of currencies, is set for its largest monthly rise since September, thanks to safe-haven flows stemming from concerns around the gridlock over the US debt ceiling.