Global stocks fell, trimming their biggest quarterly gain since the start of 2012, while the Japanese yen strengthened before a potential U.S. government shutdown. Italian bonds slumped and crude oil traded near its lowest level in three months.
The MSCI All Country World Index lost 0.5 percent as of 8:30 a.m. in New York as the Stoxx Europe 600 Index slid 0.8 percent, Asia’s benchmark gauge fell 1.4 percent and futures on the Standard & Poor’s 500 Index tumbled 0.9 percent. Italian 10- year bonds retreated for a third day and the yield on 10-year U.S. Treasury notes declined to a seven-week low. The yen rose against all 16 major peers, reaching a three-week high against the euro. West Texas Intermediate oil fell as much as 1.5 percent.
Congress is scheduled to meet today to attempt 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 starting 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.
“Risk appetite is on the retreat, driven by the political drama on both sides of the Atlantic,” Witold Bahrke, who helps oversee $55 billion as a senior strategist at PFA Pension A/S in Copenhagen, wrote in an e-mail. “Dysfunctional governments are the root of the problem, which means heightened political uncertainty will be the dominating theme, reversing the equity- friendly sentiment from the first half of September.”
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 2.3 basis points to 33.3, the highest since May 7, according to prices compiled by Bloomberg.