Stocks drop, yen rises as U.S. debt default nears
(Reuters) – The lack of an expected deal over the weekend to avert a looming U.S. debt default kept world equity markets and the dollar under pressure on Monday, while the yen rose as some investors shifted into safer assets.
Senate Majority Leader Harry Reid and Republican leader Mitch McConnell held talks that Reid on Sunday called “substantive.” Reid did not provide details.
Though Reid’s remarks gave some hope that Congress soon might pass legislation to fund the government and raise its borrowing authority, investors took a less optimistic view.
“Everybody went home last Friday figuring we had a deal in our hand,” said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Massachusetts. “But then you go through the weekend and the news was pretty much bad.”
Even if a deal gets done, which McMillan said was likely, the stand-off had created “justifiable anxiety” and tremendous uncertainty, he said.
“We’ve done more damage both directly to the economy, through the shutdown, and indirectly through postponing decisions and reintroducing uncertainly in the decision processes than anyone appreciates,” McMillan said.
MSCI’s world equity index .MIWD00000PUS fell 0.2 percent, while the FTSE Eurofirst 300 index .FTEU3 of leading European shares was little changed, up about 0.04 percent.
On Wall Street, the Dow Jones industrial average .DJI was down 72.63 points, or 0.48 percent, at 15,164.48. The Standard & Poor’s 500 Index .SPX was down 8.57 points, or 0.50 percent, at 1,694.63. The Nasdaq Composite Index .IXIC was down 15.30 points, or 0.40 percent, at 3,776.58.
The cautious mood was reflected in the market’s neutral reaction to news that factory output in the euro zone grew at its strongest pace in two years in August.
“It’s not time to be adventurous right now,” said Alastair Winter, chief economist at Daniel Stewart. “I don’t think people should be in a rush to do anything.”