Stocks declined, sending the Standard & Poor’s 500 Index to an almost one-month low, and the yen strengthened as U.S. lawmakers remained deadlocked over extending the debt limit to avoid default. Oil dropped, while government bonds advanced.
The MSCI All-Country World Index slid 0.6 percent to 381.33 at 4:19 p.m. in New York while the S&P 500 sank 0.9 percent to 1,676.12 and the Stoxx Europe 600 Index slipped 0.2 percent. Japan’s currency strengthened against all 16 major peers, reaching the strongest level versus the dollar since August. The 10-year Treasury yield fell 1.5 basis points to 2.63 percent. Oil and nickel declined at least 0.6 percent, while natural gas, silver and gold climbed at least 1 percent.
With the U.S. set to exhaust measures to avoid breaching its debt ceiling on Oct. 17, House of Representatives Speaker John Boehner said lawmakers won’t raise the limit without packaging it with other provisions. President Barack Obama reiterated that he won’t negotiate with Republicans over the partial government shutdown and the U.S. debt limit as Senate Democrats began preparing for a test vote on a clean debt-ceiling bill.
“The issue of the debt ceiling is the real driver for nervousness in the market,” Darren Bagwell, director of research at Thrivent Asset Management in Minneapolis, said in a phone interview. His firm oversees about $82 billion. “Every day that passes makes the potential for a policy mistake to be that much greater,” he said. “Absent Washington, there was nervousness anyway as we headed into the third-quarter” earnings season.
There aren’t enough votes in the House to “pass a clean debt limit,” Boehner said in an interview on the ABC network’s “This Week” program yesterday. The country could end up in default should Obama not negotiate on the issue, he said.
Treasury Secretary Jacob J. Lew, who made appearances on four of the major Sunday TV talk shows, said the administration would only be willing to negotiate after a partial government shutdown, now in its sixth day, comes to an end and the debt ceiling is increased. He also warned of the dangers of default.
“Everyone assumed there would be more action over U.S. shutdown and debt-ceiling talks over the weekend, and now reality has set in,” Veronika Pechlaner, who helps oversee about $2.3 billion as an investment manager at Jersey, Channel Islands-based Ashburton Ltd., said by phone. “Investors will be nervous until some sort of compromise is reached.”
Gauges of consumer-discretionary, financial and commodity stocks dropped at least 1.2 percent to lead declines in nine of the 10 main industry groups in the S&P 500.
Bank of America Corp. and Wells Fargo & Co. lost about 1.7 percent each to pace declines among banks. Alcoa Inc., which is scheduled to release third-quarter results tomorrow, ended little changed. International Business Machines Corp. declined 1.1 percent as Barclays Plc advised investors to pare holdings.
The Chicago Board Options Exchange Volatility Index, the benchmark gauge of U.S. equity options known as the VIX, jumped 16 percent to 19.41 today, the highest level since June.
The S&P 500 has retreated 2.9 percent from its last record on Sept. 18, when the Federal Reserve unexpectedly refrained from reducing its $85 billion in monthly bond purchases. Three rounds of Fed stimulus have helped drive the gauge up almost 150 percent from a 12-year low in 2009. The benchmark index has rallied 18 percent this year on better-than-estimated earnings and as data from manufacturing to housing and the labor market improved.
Commodity stocks, lagging behind the S&P 500 by the most in 15 years, are poised to rally as analysts estimate profits will rise almost twice as fast as the rest of U.S. industry in 2014.
Mining companies and chemical producers in the S&P 500 will increase earnings by 18 percent in 2014, compared with a 11 percent gain for the equity gauge, according to the average of more than 9,000 estimates compiled by Bloomberg. Commodity stocks were the worst-performing S&P 500 group during the first six months of the year, before climbing the most in almost two years last quarter. Raw-materials companies are on track to lag behind the U.S. stock index for a third straight year, the longest stretch since 1998.
The Stoxx 600 closed at the lowest level since Sept. 9 as 16 of 19 industry groups retreated. Burberry Group Plc slid 1.2 percent after the luxury-goods maker’s chief executive officer told the Les Echos newspaper that a slowdown in Chinese sales may not be temporary.
The VStoxx Index, a gauge of the cost of using options to hedge against moves in the Euro Stoxx 50, climbed 3.1 percent to the highest level since Sept. 9 after surging as much as 11 percent earlier.
U.S. government data from payrolls to retail sales will be delayed as long as the shutdown continues.
Partially closing the U.S. government for one week would probably shave 0.1 percentage point from economic growth, according to the median of 40 estimates in a Bloomberg survey of economists conducted last week.
“We have a vacuum as there is no economic data and the earnings season hasn’t started yet,” said Robert Royle, who helps oversee $21 billion as manager of the North American Trust at Smith & Williamson Investment Management LLP in London. “A default is a much a bigger issue, but they will likely have to come to an agreement.”
The MSCI Emerging Markets Index fell for the first time in five days, losing 0.3 percent. The Hang Seng China Enterprises Index in Hong Kong dropped 0.9 percent. Mainland Chinese markets, which have been closed since Oct. 1 for the National Day holidays, resume trading tomorrow. Brazil’s Ibovespa slid 0.9 percent while Poland’s WIG Index retreated 0.5 percent and benchmark gauges in South Africa, Thailand and Turkey declined at least 0.4 percent.
Japan’s currency rose 0.6 percent to 96.86 per dollar and climbed 0.5 percent per euro. The dollar was down 0.1 percent at $1.3577 per euro.
German 10-year bunds advanced with U.S. Treasuries, pushing yields on the securities four basis points lower to 1.80 percent. U.K. 10-year gilt yields dropped three basis points to 2.71 percent.
West Texas Intermediate oil dropped 0.8 percent to $103.03 a barrel as Gulf of Mexico production resumed after Tropical Storm Karen weakened. The S&P GSCI index of 24 commodities was little changed.