Asian shares, oil prices and the dollar came under pressure on Monday as politicians in Washington showed no signs of making progress to resolve the U.S. budget standoff, while safe-haven gold inched higher.
Financial bookmakers expected European shares .FTSE .GDAXI .FCHI to follow Asia lower and open down between 0.4 and 0.5 percent.
Democrats and Republicans remained far apart on ending the government shutdown, let alone reaching a deal on the U.S. borrowing limit by October 17 to avoid an unprecedented default.
Republican House Speaker John Boehner vowed not to raise the debt ceiling without a “serious conversation” about what is driving the debt, while Democrats said it was irresponsible and reckless to raise the possibility of a default.
The comments appeared to mark a hardening stance since late last week when Boehner was reported to have told Republicans privately that he would work to avoid default, even if it meant relying on the votes of Democrats, as he did in August 2011.
The U.S. Standard & Poor’s 500 e-mini futures shed 0.6 percent in Asian trade on Monday, pointing to further weakness on Wall Street later in the day. The S&P 500 index .SPX ended down 0.1 percent last week.
U.S. Treasury futures rose 5-1/2 ticks.
Selling of riskier assets has been orderly so far, but investors expect volatility to increase if the shutdown continues as the Oct 17 deadline gets closer.
“As the days tick by and the U.S. government’s cash gradually starts to run out, the stakes will rise considerably,” analysts at ANZ said in a note.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.6 percent. Its 12-month forward price-to-earnings ratio stood at 11.8 as of last week, below a 10-year average of 12.4, Thomson Reuters Datastream data showed.
Japan’s Nikkei share average .N225 dropped 1 percent, hitting a one-month low and extending last week’s 5 percent tumble – its biggest weekly fall since early August.
NERVE TESTING TIME AHEAD
“A higher risk of a U.S. sovereign default would lead to a flight to liquidity and, ironically, a stronger U.S. dollar, except against the most liquid/safest-haven ones: euro, yen, sterling and Swiss franc,” analysts at Barclays Capitals wrote in a note.
“That is not to say we expect a breach of the ceiling, and continue to expect that a resolution will be found, despite the brinkmanship.”
The dollar slipped 0.3 percent to 97.15 yen, giving up its gains on Friday to snap a five-day losing run against the Japanese currency.
The greenback was down 0.1 percent against the euro at $1.3568. Against a basket of major currencies, the dollar .DXY eased 0.1 percent to be within striking distance of an eight-month trough hit last week.
Brent crude eased 0.3 percent to around $109.10 a barrel, after gaining 0.8 percent last week to end a three-week losing run.
Gold, a safe-haven investment, rose 0.3 percent to about $1,314 an ounce.
“If we don’t see any progress till the 17th, I think we will see gold spike to $1,400,” said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore.
Source : Reuters
