Global stocks fell, trimming the biggest quarterly gain since the start of 2012, before a potential U.S. government shutdown. Treasuries and the yen reversed early gains while crude oil traded near its lowest level in three months.
The MSCI All Country World Index lost 0.8% as of 3:14 p.m. in New York as the Standard & Poor’s 500 Index slipped 0.6% to 1,681.94, trimming an earlier 1% drop. The yield on 10-year U.S. Treasury notes was down one basis point at 2.62% after losing four basis points earlier. The yen fell against 10 of 16 major peers after rising versus all of them earlier. West Texas Intermediate oil fell as much as 1.8% before trimming its loss to 0.3%, still trading at the lowest on a closing basis since July 3.
The deadlocked U.S. Congress headed into the final hours before the first partial government shutdown in 17 years without any signs of averting widespread furloughs of government workers. 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.
“We are at the mercy of whatever develops in Washington,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in an interview. “An attempt to prevent a shutdown is not totally unexpected, but some agreement will be better than none.”
Republicans and Democrats remained at odds over whether to tie any changes to the 2010 Affordable Care Act to a short-term extension of government funding. The Senate voted 54-46 to reject the House’s latest plan, in a party-line move that puts the pressure back on House Republicans, who began meeting at 2 p.m. in the Capitol basement.
House Republicans are planning another volley that would include a delay of the individual mandate to purchase health insurance and eliminate government contributions to lawmakers’ health coverage, said a Republican leadership aide speaking on the condition of anonymity.
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.
Procter & Gamble Co., Nike Inc. and Coca-Cola Co. lost at least 1.5% to lead declines in 29 of 30 stocks in the Dow Jones Industrial Average. All 10 of the main industry groups in the S&P 500 fell, led by consumer-staples and energy companies.
While the S&P 500 Index slipped 1.1% last week, the benchmark index has added 3.6% this month to extend its quarterly gain to 5.3% as the Federal Reserve kept its $85 billion of bond-buying a month. The central bank will pare the size of purchases in December, according to 59% of 41 economists in a Sept. 18-19 survey.
U.S. stocks are trading virtually in lockstep with 1954, the best year for American equity and the time when shares finally recovered all their losses from the Great Depression.
The S&P 500’s returns in 2013 are tracking day-to-day price moves in 1954 almost identically, according to data compiled by Bespoke Investment Group and Bloomberg. In no other year are the trading patterns more similar to 2013 since data on the index began 86 years ago. The correlation coefficient between this year and 1954, when the benchmark gauge rose 45%, is 0.95 out of a maximum of 1.
American equities this year climbed above the 2007 peak before the global financial crisis, like they did in 1954 when the S&P 500 reached a new high for the first time since 1929. While bearish investors say the correlation is irrelevant, bulls say the index will keep rising the way it did 59 years ago, as investors regain faith in U.S. profits.
Ten-year Treasury yields declined as much as four basis points to 2.59% earlier, 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 3.2 basis points to 35.15, the highest since May, according to prices compiled by Bloomberg.
The yen was little changed at 98.23 per dollar after earlier strengthening as much as 0.7%. The Japanese currency erased gains against the shared European currency after earlier rising as much as 1.1% to 131.38 per euro on demand for safety after Italy’s leaders stopped short yesterday of dissolving Prime Minister Enrico Letta’s five-month old administration.
Italy’s FTSE MIB Index slid 1.2% as Mediaset SpA and Unione di Banche Italiane lost more than 4% to lead declines. Telecom Italia SpA rose 5.2% as a person with knowledge of the matter said Chief Executive Officer Franco Bernabe plans to resign this week.
Italy’s 10-year yield jumped as much as 24 basis points to 4.66%, the highest since June 27, before paring gains and trading at 4.43%.
The cost of insuring against losses on Italian government debt climbed to the highest since July, with credit-default swaps linked to the sovereign bonds rising 4.9 basis points to close at 266.09 basis points, according to prices compiled by Bloomberg.
The Stoxx Europe 600 Index declined 0.6% to the lowest level in more than two weeks. Rio Tinto Group led mining shares lower as a measure of Chinese manufacturing compiled by HSBC Holdings Plc and Markit Economics missed a preliminary estimate.
The Stoxx 600 has still climbed 4.4% in September. The gauge has rallied 8.9% since the end of June, on course for the biggest quarterly gain in four years.
The MSCI Emerging Markets Index fell 1%, the biggest drop in a month. The PCOMP Index in the Philippines slumped 3%, the most in September.
HSBC Holdings Plc and Markit Economics said today that their manufacturing purchasing managers’ index for China delivered a reading of 50.2 for September, falling short of an estimate of 51.2 in Bloomberg survey. Fifty is the threshold between contraction and expansion. A report in Japan showed industrial production unexpectedly fell 0.2% in August from a year ago, after rising 1.8% in July. Analysts surveyed by Bloomberg called for a 0.5% gain.
The S&P GSCI Index of commodities dropped 0.6%, trimming the gain for this quarter to 3.5%, the most in a year. WTI crude oil lost 0.3% to $102.57 a barrel, the lowest on a closing basis since July 3. Brent futures lost 0.1% to $108.48 a barrel, while contracts on gasoline slipped 1.6%.