Markets drift as debt ceiling deadline looms
AP and AFPLONDON/HONG KONG--Three days from a deadline to increase the U.S. debt ceiling, investors were fidgety Monday and stocks drifted lower.
October 15, 2013, 12:08 am TWN
The U.S. has to increase the amount of debt it can build up by Oct. 17 or else face a possible default on its debt, a scenario that could derail the U.S. economic recovery and roil international markets.
Negotiations between Republicans and Democrats over the weekend failed to reach a conclusion either on the raising of the debt ceiling or the partial shutdown of the U.S. government, which has now entered a third week.
Despite the possible nightmare scenario of a U.S. debt default, markets have proven more resilient than many analysts thought.
“Clearly, despite being unsuccessful so far, the negotiations on Capitol Hill are providing some comfort for traders, who remain reluctant to heavily sell their positions,” said Craig Erlam, market analyst at Alpari.
In Europe, Germany's DAX was down 0.2 percent at 8,706 while the CAC-40 in France was down the same rate at 8,707. The FTSE 100 index of leading British shares was actually trading higher, up 0.1 percent at 6,494.
Wall Street was heading for a lower opening, with both Dow futures and the broader S&P futures down 0.6 percent. Trading is expected to be light, though, with much of the U.S. on holiday for Columbus Day.
Despite the public holiday, Washington will remain the focus of attention in financial markets, with Senate leaders from both sides set for discussions.
Democratic Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell spoke by phone Sunday but failed to agree on a deal to raise the nation's borrowing authority above the US$16.7 trillion debt limit.
Earlier, trading in Asia was muted, with markets in Tokyo and Hong Kong closed for holidays.
Outside of those major financial centers, China's Shanghai Composite Index rose 0.4 percent to 2,237.77 while South Korea's Kospi was off 0.2 percent at 2,020.27. Australia's S&P/ASX 200 shed 0.4 percent to 5,207.90.
Asian markets slipped Monday, with traders growing nervous that talks to raise the U.S. borrowing limit remain deadlocked just days before the deadline to avoid a default.
Adding to selling pressure was a disappointing batch of Chinese trade figures at the weekend that indicated a recent pick-up in the world's number two economy may not be as strong as hoped.
Sydney fell 0.44 percent, or 23.0 points, to 5,207.9, Seoul eased 0.23 percent, or 4.63 points, to 2,020.27 and Singapore dropped fell 0.45 percent, or 14.46 points, to 3,165.25.
However, Shanghai added 0.43 percent, or 9.62 points, to 2,237.77 despite the weak data at the weekend, with investors buying consumer-related shares owing to a bigger jump in inflation than expected.
Tokyo, Hong Kong and Jakarta were closed for public holidays.
With the U.S. expected to run out of cash to pay its bills on Thursday, focus is on Washington, where President Barack Obama has urged Republicans to agree to a debt ceiling hike.
Failure to raise the spending limit would mean a default that could have a devastating effect around the world.
China and Japan — who between them hold more than US$2.4 trillion of U.S. debt — have urged the U.S. to get its house in order and avert a default.
Gold cost US$1,281.60 at 1045 GMT compared with US$1,290.30 on Friday.