S&P 500 Futures Slip as Yen Gains While Oil Resumes Drop

Futures (SPA) on the Standard & Poor's 500 Index fell and the yen climbed against the dollar as U.S. lawmakers continued to scrap over raising the debt limit and the government shutdown. Crude oil declined while gold rallied.

S&P 500 Index futures sank 0.5 percent by 10:01 a.m. in Tokyo after the gauge rose 0.7 percent Oct. 4, snapping a two-day drop. The MSCI Asia Pacific Index dropped 0.1 percent as indexes from Japan to Australia swung between gains and losses. Japan's currency strengthened 0.3 percent, extending last week's 0.8 percent advance. Malaysia's ringgit climbed a fifth day and Treasuries rose. West Texas Intermediate oil fell for the second time in three days and gold added 0.3 percent.

With the U.S. set to exhaust measures to avoid breaching its debt ceiling Oct. 17, House of Representatives Speaker John Boehner said in an interview that lawmakers won't raise the limit without packaging it with other provisions, a nonstarter for President Barack Obama. Government data from payrolls to retail sales will be delayed as long as the partial shutdown continues. In Asia, the Bank of Japan publishes its October report today and Taiwan releases inflation and trade figures.

"Markets continue to assume an 11th hour solution to the current U.S. fiscal impasse will be found, as no one wants to wear the blame for a debt default," Sharon Zollner, a senior economist at ANZ Bank New Zealand Ltd. in Wellington, wrote in a note to clients today. "But as the days tick by and the U.S. government's cash gradually starts to run out the stakes will rise considerably."

Japan's Topix Index (TPX) fell 0.1 percent after sliding 4.4 percent last week. South Korea's Kospi Index rose 0.1 percent following last week's 0.7 percent retreat.

Pension Fund

The Japanese state-run Government Pension Investment Fund, which manages 121 trillion yen ($1.24 trillion), plans to increase holdings of growth stocks and may eventually invest several trillion yen in such equities, the Nikkei newspaper reported Oct. 5 without citing anyone.

The yen strengthened to 97.23 per dollar and gained against most of its major peers. Japan also releases its composite index of business cycle indicators today.

In Australia, where many businesses are closed for Labor Day, the S&P/ASX 200 Index (AS51) fell less than 0.1 percent in trading volumes 70 percent below the 30-day average for this time of day.

Australia's dollar rose 0.1 percent to 94.45 U.S. cents after climbing 1.3 percent in the five days to Oct. 4, the fourth advance in five weeks. The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, lost 0.1 percent today after snapping a five-day slump Oct. 4, rallying 0.2 percent.

Ringgit Strength

The ringgit strengthened 0.3 percent to 3.1724 per dollar, headed for the strongest close since Sept. 20. Growth in Malaysian exports accelerated to an 18-month high in August, government data Oct. 4 showed.

"The better trade numbers also helped to alleviate concern of current account weakness," Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore, said by phone. "Dollar weakness" also fueled ringgit gains, he said.

The Swiss franc gained 0.2 percent to 90.54 centimes per dollar.

Global stocks have slipped 0.3 percent since Oct. 1, when U.S. lawmakers' failure to pass a spending bill caused a partial shutdown of the government. In an interview on the ABC network's "This Week" program yesterday, Speaker Boehner said there were not enough votes in the House to "pass a clean debt limit" and that the country would default should President Obama not negotiate on the issue.

Defense Workers

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 the partial shutdown comes to an end and the debt ceiling is increased. He also warned of the dangers of default, as well as the possibility that Congress may actually fail to pass an increase.

The Defense Department is calling back most of its civilian employees furloughed under the shutdown, Defense Secretary Chuck Hagel said in an Oct. 5 statement. Meanwhile, three House lawmakers with ties to the Tea Party movement said they'd back a U.S. spending bill that doesn't center on the health-care legislation known as Obamacare.

Bill Gross, co-chief investment officer for Pacific Investment Management Co. and Larry Fink, chairman and chief executive officer of BlackRock Inc., said last week that the deadlock will be resolved soon, limiting damage to the economy.

Fed Outlook

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.

The shutdown delayed the release of the U.S. Labor Department's monthly payrolls report, which was due Oct. 4. Retail sales figures are scheduled for Oct. 11. The lack of data may make it harder for the Federal Open Market Committee to assess the economy's strength as policy makers mull the timing of reductions in their bond buying program after unexpectedly maintained stimulus last month.

Atlanta Fed President Dennis Lockhart said last week that the shortage of economic news "would tend to make me somewhat more cautious" about reducing the pace of asset purchases. Minutes of the FOMC's Sept. 17-18 meeting will be published Oct. 9 in the U.S.

'Off Table'

"The taper is off the table for October, that is a silver lining for the market," Phil Orlando, New York-based chief equity strategist at Federated Investors, said by phone Oct. 4. His firm manages about $380 billion in assets. "Given the fact that there is no jobs data and given the fact that we have triggered the potential breach of the debt ceiling, in my opinion there is zero chance that the Fed is going to commence the taper at the Oct. 29-30 FOMC meeting."

The yield on 10-year U.S. Treasuries dropped one basis point, or 0.01 percentage point, to 2.63 percent. The U.S. will auction $64 billion of notes and bonds this week. Similar maturity Australian bonds fell a second day, pushing yields up five basis points to 4.09 percent.

Futures on Hong Kong's Hang Seng Index rose 0.4 percent in their most recent trading session, as contracts on the Hang Seng China Enterprises Index climbed 0.6 percent. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York jumped 1.1 percent Oct. 4, capping a weekly advance of 2.6 percent, led by Internet stocks. Renren Inc. (RENN) surged 20 percent last week. The Hang Seng gauge fell 0.3 percent last week.

Mainland Chinese markets, which have been closed since Oct. 1 for the National Day holidays, resume trading tomorrow.

Commodity Moves

WTI dropped 0.4 percent to $103.41 a barrel as production in the Gulf of Mexico resumed after the passing of Tropical Storm Karen. BP Plc, Enbridge Inc. and other companies said that they returned workers to platforms yesterday as the storm weakened.

Gasoline and Brent crude futures also fell, losing 0.2 percent.

Gold rose to $1,315.06 an ounce, following last week's 1.9 percent decline. Silver and palladium gained at least 0.4 percent. Nickel for three-month delivery on the London Metal Exchange dropped 0.7 percent after surging 3.9 percent Oct. 4, while zinc rose 0.2 percent.