BLBG:Global Stocks Drop as Shutdown Looms; Treasuries Rise
Global stocks fell, trimming their best quarter in 18 months, while U.S. Treasuries and the Japanese yen advanced before a potential U.S. government shutdown. Crude oil and Italian bonds slumped.
The MSCI All Country World Index lost 0.5 percent as of 10:16 a.m. in London as the Stoxx Europe 600 Index slid 0.9 percent and Asia’s benchmark gauge tumbled 1.5 percent. Italian 10-year bonds retreated for a third day and the yield on 10-year Treasury notes declined to a seven-week low. The yen strengthened against all 16 major peers, reaching a three-week high against the euro. West Texas Intermediate oil fell 1.4 percent.
Congress is scheduled to meet today to end a stalemate that raises the risk of the first government shutdown in 17 years and threatens talks to increase the debt limit. Italy’s government is on the verge of collapse after allies of former leader Silvio Berlusconi said they would quit the cabinet. China’s manufacturing rose less than economists estimated in September.
“Farce reigns and risk aversion rises,” Kit Juckes, the global strategist at Societe Generale SA in London, wrote in a note to clients. “The U.S. is still heading toward a shutdown, the Italian government is heading for a confidence vote that probably precedes elections.’’
Debt Ceiling
The House of Representatives voted 231-192 yesterday to stop many of the Affordable Care Act’s central provisions for one year, tying it to an extension of U.S. government funding through Dec. 15. Should the Senate reject the bill today the government could be shut down from tomorrow. Even if the budget fight is resolved, lawmakers would immediately move to the next fiscal dispute over raising the $16.7 trillion debt ceiling.
“While a shutdown itself would not be very impactful in the short term, the lack of cooperation across the aisle doesn’t make me feel confident that a resolution on the debt ceiling will be reached in time,” Paul Zemsky, New York-based head of asset allocation at ING Investment Management LLC, which oversees $180 billion, said by e-mail. “That would be much more disruptive to the economy and the markets.”
Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, President Barack Obama said in a televised statement Sept. 27. Closing the government would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, according to economists from Moody’s Analytics Inc. to Economic Outlook Group LLC.
Treasury Yields
Ten-year Treasury yields declined as much as four basis points to 2.59 percent, the least since Aug. 12, after falling 11 basis points in the five days to Sept. 27. Credit-default swaps on U.S. Treasuries rose 1.4 basis points to 32.4, the highest since May 7, according to prices compiled by Bloomberg.
The yen appreciated 0.4 percent to 97.89 per dollar and touched 97.53, the strongest level since Aug. 29.
The currency rose as much as 1.1 percent to 131.38 per euro before trading at 131.98 on demand for safety after Italy’s leaders stopped short yesterday of dissolving Prime Minister Enrico Letta’s five-month old administration.
Italy’s FTSE MIB Index slid 1.7 percent as UniCredit SpA and Intesa Sanpaolo SpA, the nation’s biggest banks, dropped more than 3 percent. Telecom Italia SpA rose 2.9 percent as a person with knowledge of the matter said Chief Executive Officer Franco Bernabe plans to resignation this week.
Italy’s 10-year yield jumped eight basis points to 4.50 percent and reached 4.66 percent, the highest since June 27. The cost of insuring against losses on Italian government debt climbed to the highest since July 15, with credit-default swaps linked to the sovereign bonds rising 16 basis points to 278 basis points, according to prices compiled by Bloomberg.
Yen Gains
The Stoxx Europe 600 Index declined 0.8 percent to the lowest level in more than two weeks. Mining companies led losses, with Rio Tinto Group sliding 2.1 percent in London trading, as a measure of Chinese manufacturing compiled by HSBC Holdings Plc and Markit Economics missed a preliminary estimate.
The Stoxx 600 has still climbed 4.2 percent in September. The gauge has rallied 8.7 percent since the end of June, on course for the biggest quarterly gain in four years.
The cost of insuring against losses on corporate bonds rose to the highest in almost a month. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies increased 3.1 basis points to 105.3 basis points, the most since Sept. 5.
Emerging Markets
The MSCI Emerging Markets Index fell 1 percent, declining for a fifth day and set for the steepest drop in a month, on concern the U.S. government is headed for a shutdown. The PCOMP (PCOMP) Index in the Philippines slumped 3 percent, the most in September.
Thailand’s SET Index dropped 2.1 percent on concern recent flooding that affected 25 provinces and killed 22 people in the country would hurt economic growth, Rakpong Chaisuparakul, a strategist at KGI Securities, said by phone in Bangkok. In currencies, the Indonesian rupiah and the Malaysian ringgit were among the biggest decliners in 24 emerging-market peers monitored by Bloomberg.
HSBC Holdings Plc and Markit Economics said today that their manufacturing purchasing managers’ index for China delivered a reading of 50.2 for September, falling short of an estimate of 51.2 in Bloomberg survey. Fifty is the threshold between contraction and expansion. A report in Japan showed industrial production unexpectedly fell 0.2 percent in August from a year ago, after rising 1.8 percent in July. Analysts surveyed by Bloomberg called for a 0.5 percent gain.
Crude Oil
Australian government bonds due in a decade yielded 3.81 percent, down five basis points, or 0.05 percentage point, in a second day of declines.
The S&P GSCI dropped 0.7 percent, trimming the gain for this quarter to 3.4 percent, the most in a year. WTI crude oil slid to $101.94 a barrel, headed for the lowest close since July 3. Brent futures lost 0.8 percent to $107.81 a barrel, while contracts on gasoline slipped 1 percent.
All 10 groups in the Asian equity gauge fell. Japan’s Topix Index (TPX) slumped 1.9 percent, trimming its first monthly gain since April to 8 percent. The Kospi Index in Seoul fell 0.7 percent and Australia’s S&P/ASX 200 Index slid 1.7 percent, halting a three-day gain.
To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Lars Paulsson in London at lpaulsson@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
