Global equity markets and the dollar fell yesterday as the US government shutdown entered its second day and as data showed US private employers added fewer jobs than expected last month.
Although equities showed resilience on Tuesday on hopes the first partial shutdown of the US government in 17 years would be short-lived, just one day later concerns about the economic impact grew as no signs emerged of an end to the budget standoff in Washington.
Market volatility will likely increase the longer the shutdown persists. Investors are also looking for an indication of how negotiations play out over the looming need to raise the government’s debt ceiling. The debt ceiling is far more important, as it could lead to an unprecedented default by the US, which is considered unlikely.
“There’s a sense that the debate isn’t going to end soon. Yesterday’s rally was driven by a hope this wouldn’t last, but that hope is diminishing,” said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York.
Data showing that US private employers added 166,000 jobs in September, below forecasts for 180,000 new jobs, added to investor jitters. The private-sector report has taken on added significance this week because the government shutdown means that the monthly payrolls report due out tomorrow from the Labour Department may be delayed.
MSCI’s world equity index, which tracks shares in 45 countries, fell 0.28 per cent to 383.55 one day after gaining 0.7 per cent.
In Europe, the FTSEurofirst 300 index of top regional shares ended 0.7 per cent lower at 1,247.14 points, while the euro zone’s blue-chip Euro STOXX 50 index was down 0.5 per cent at 2,918.31 points.
The Dow Jones industrial average fell 72.67 points, or 0.48 per cent, at 15,119.03. The Standard & Poor’s 500 Index slid 4.88 points, or 0.29 per cent, at 1,690.12. The Nasdaq Composite Index lost 7.01 points, or 0.18 per cent, at 3,810.98.
The dollar extended Monday’s losses on expectations the shutdown will further delay the Federal Reserve’s plans to scale back its asset-purchase programme.
The dollar index, which tracks the greenback against six major currencies, fell as low as 79.781, its lowest level since February. It was last trading at 79.905, down 0.29 per cent.
Safe-haven US government debt prices rose. The benchmark 10-year US Treasury note rose 11/32 in price to yield 2.6082 per cent.
The cost of insuring US government bonds against default for the next year also rose, gaining five basis points to raise the cost of protecting $10 million of debt to $35,000 – the highest since August 31 and above the rate for five-year insurance.
Because it usually costs more to buy longer-term default insurance, the current level is considered a classic sign of credit stress, reflecting the concerns over whether the United States will be able to raise the federal government’s debt limit in the coming weeks.
The euro rose 0.44 per cent to $1.3583, after having hit $1.3606, its highest level since February.
The European Central Bank left interest rates unchanged, holding off any fresh policy action while it waits to see whether the fragile euro zone recovery strengthens.