Stocks slid around the world and gold rallied as the U.S. government shutdown entered a second day and a report showed American employers added fewer jobs than forecast. The dollar fell, while the yen and Treasuries rose.
The MSCI All-Country World Index dropped 0.3% at 2:50 p.m. in New York and the Standard & Poor’s 500 Index slipped 0.3%, paring an earlier drop of as much as 0.9%. Gold and silver jumped more than 2% to lead commodities higher and oil rallied on speculation a pipeline expansion will fuel demand. The 10-year Treasury yield fell three basis points to 2.62%. The dollar weakened versus 11 of 16 major currencies, while the yen rose versus 14. The euro and Italian notes rallied.
Day one of the first shutdown since 1996 ended with no talks scheduled between the White House and Congress, and Treasury Secretary Jacob J. Lew said the U.S. has begun final extraordinary measures that will be exhausted no later than Oct. 17 to avoid breaching its debt limit. The ECB kept its refinancing rate at 0.5%, matching economists’ estimates in a Bloomberg survey.
“It’s all about the lack of progress out of Washington and concerns about the debt ceiling and the government shutdown all being negotiated in one package,” Paul Zemsky, chief investment officer of multi-asset strategies for ING Investment Management, said by phone from New York. His firm oversees $190 billion. “If we fail to reach a debt-ceiling agreement, that could cause a global-type of concern and cause markets to sell off globally.”
The S&P 500 erased most of yesterday’s 0.8% gain as consumer-staples, health-care and industrial companies led declines among all 10 of the main industry groups. The benchmark index has declined almost 2.5% after last reaching a record on Sept. 18 when the Federal Reserve refrained from reducing its stimulus program.
Companies that rely on government contracts helped lead losses today, with United Technologies Corp., Lockheed Martin Corp. and Raytheon Co. slipping more than 2%.
Monsanto Co. dropped 1.7% as the world’s largest seed company gave a full-year earnings forecast that trailed analyst estimates. Alcoa Inc. slumped 2.3% after Deutsche Bank AG lowered its rating on the aluminum producer. Global Payments Inc. rallied 11% after boosting its earnings forecast.
Companies increased payrolls by 166,000 in September, figures from ADP Research Institute showed today. The median forecast of 40 economists surveyed by Bloomberg called for an advance of 180,000.
U.S. stocks may reach a new high before dropping by as much as 4% in the next four to five weeks, as the S&P 500 forms a rising wedge, according to technical analysts at UBS AG.
While the S&P 500 doesn’t show any bearish divergence in trading indicators such as the NYSE McClellan Oscillator, which measures the moving average of net advancing shares in a market, or the number of stocks above their 20-day moving average, the index may reach another high by mid-October, before falling, Michael Riesner and Marc Mueller wrote in a note dated Oct. 1.
The Stoxx Europe 600 Index fell 0.7% for the third decline in four days.
Hochtief AG slumped 7.9% after the Sydney Morning Herald reported allegations of corruption at the company’s Australian business. KappAhl AB dropped 9.8% after the clothing retailer proposed paying no dividend this financial year. Portugal Telecom SGPS SA jumped 6.5%, the most in almost four months, after agreeing to merge with Brazil’s Oi SA to form a network operator with 100 million subscribers.
The MSCI Emerging Markets Index added 0.2%, a second straight gain. The Philippine Composite Index jumped 2.7% after the Asian Development Bank raised its economic growth forecast for the country, while gauges in Russia and Turkey fell more than 1%. Markets in India and China were shut for holidays.
Gold futures jumped 2.4% to $1,317.40 an ounce, the first gain in three days, and silver surged 2.8% to $21.78 an ounce. West Texas Intermediate oil added 1.8% to $103.83 a barrel after TransCanada Corp. said it expects to complete work on the southern portion of its Keystone pipeline expansion by the end of October.
The 10-year Treasury yield slid as low as 2.59, within one basis point of the lowest level since Aug. 12. The yield is down from the high this year of 3.005% on Sept. 6 and compares with the average of 3.53% over the past decade.
Treasury market volatility increased by the most in six weeks yesterday. Price swings as measured by the Merrill Lynch Option Volatility Estimate Index jumped 9% as the gauge advanced for a fifth day, the longest run of increases in four weeks. The index was at 87.37, versus the average of 69 for the past year.
The cost of insuring against losses on Treasuries fell, with credit-default swaps linked to U.S. government debt rose two basis points to 35.42 basis points, the highest since April. That compares with a peak of 56 basis points in July 2011, when a political standoff threatened to shutter programs and delay bond payments.
Strategists from Bank of America Corp. to Wells Fargo & Co. predict dollar-denominated corporate bonds will outperform stocks this month if political gridlock persists with the government partially shut down this week.
Company debt in the U.S. has gained 1.1% since Sept. 17, the day before the Federal Reserve surprised investors with its decision to maintain unprecedented economic stimulus, compared with a 0.5% decline on the S&P 500. In August 2011, the last time legislators approached a deadline to raise the debt limit, investment grade bonds returned 0.13% while U.S. stocks declined 5.4%.
The amount of debt protected by default swaps has fallen to $3.4 billion dollars from $5.6 billion two years ago and compares with $13 billion of outstanding insurance on German bunds. There are 886 credit-default swaps contracts linked to U.S debt outstanding, according to the Depository Trust & Clearing Corp. There were 56 trades covering a gross $2.1 billion of Treasuries in the week through Sept. 27, compared with 10 trades the week before.
Italy’s 10-year bond yield fell five basis points to 4.37%. Italian notes gained as Silvio Berlusconi said he’ll back Prime Minister Enrico Letta’s government.The yield on similar-maturity Portuguese notes jumped 18 basis points to 6.77%.
The yen appreciated for a second day, gaining 0.5% to 97.51 per dollar, while the euro gained 0.4% to $1.3582 after European Central Bank President Mario Draghi said the bank is attentive to exchange-rate developments.