Publications
Partners
New York - Fears that the United States could suffer a ratings downgrade hit world stocks on Monday and drove money into safe-haven gold and Swiss francs as a breakdown in budget talks in Washington unsettled markets.
Prospects of a budget breakthrough that would allow the United States to raise its debt ceiling and avoid default on its bond payments faded over the weekend as lawmakers missed a self-imposed deadline to produce a deal.
Gold hit a record high and the dollar fell to a record low against the Swiss franc.
Also weighing on markets was Moody’s decision to cut Greece’s credit rating further into junk territory. Moody’s said it was almost certain to slap a default tag on Greek debt as a result of a new EU rescue package.
Analysts warned of further sharp selling in stocks if Washington fails to increase the debt limit and enters a technical default on its debt next month; analysts have priced in a roughly 10% chance of such a scenario.
Many investors are still clinging to the hope that the two major US political parties will reach a compromise to increase the $14.3 trillion borrowing ceiling by August 2.
“This whole game of chicken is fraught with risk,” said Ken Polcari, managing director at ICAP Equities in New York. “Risk for the investors, for the consumer, to the economy, to Americans, to Europeans, risk across the board.”
The Swiss franc was the biggest beneficiary of the demand for safe havens, pushing the dollar down nearly 2% to an all-time low of 0.8021 franc. The euro fell by the same margin versus the Swiss currency, and against the dollar it fell as low as $1.4323.
Spot gold hit a new peak at $1 622.49 an ounce and was up 1.1% at $1 616.00.
Gold was on track for its biggest monthly gain since April on concerns over eurozone debt levels, as well as the US budget negotiations.
On Wall Street, the Dow Jones industrial average was down 0.34%, Standard & Poor’s 500 fell 0.27% and the Nasdaq Composite Index was down 0.14%.
MSCI’s all-country world equity index fell 0.4%.
European shares also slipped, snapping a four-day winning run, with banks falling on renewed worries about eurozone peripheral debt as well as the US political gridlock.
The pan-European FTSEurofirst 300 was down 0.29% and the Stoxx Europe 600 bank index fell 2.8%.
Longer-dated US Treasury yields rose and European shares lost ground as the debt impasse in Washington stirred more worries that political wrangling between lawmakers will prompt a cut in the United States’ AAA credit rating.
The benchmark 10-year US Treasury note was down 3/32 in price to yield 2.98%.
Brent oil futures dropped below $118 a barrel after the weekend breakdown of US budget talks in Washington, before paring losses. Brent crude for September was 65 cents lower at $118.02 a barrel.
US oil was 81 cents lower at $99.06.
“We have a situation where if they don’t get an agreement on raising the US debt level, that will be bearish for all assets,” said Robin Bhar, analyst at Credit Agricole. “But bizarrely, the weakening dollar is supporting commodities.”
Prospects of a budget breakthrough that would allow the United States to raise its debt ceiling and avoid default on its bond payments faded over the weekend as lawmakers missed a self-imposed deadline to produce a deal.
Gold hit a record high and the dollar fell to a record low against the Swiss franc.
Also weighing on markets was Moody’s decision to cut Greece’s credit rating further into junk territory. Moody’s said it was almost certain to slap a default tag on Greek debt as a result of a new EU rescue package.
Analysts warned of further sharp selling in stocks if Washington fails to increase the debt limit and enters a technical default on its debt next month; analysts have priced in a roughly 10% chance of such a scenario.
Many investors are still clinging to the hope that the two major US political parties will reach a compromise to increase the $14.3 trillion borrowing ceiling by August 2.
“This whole game of chicken is fraught with risk,” said Ken Polcari, managing director at ICAP Equities in New York. “Risk for the investors, for the consumer, to the economy, to Americans, to Europeans, risk across the board.”
The Swiss franc was the biggest beneficiary of the demand for safe havens, pushing the dollar down nearly 2% to an all-time low of 0.8021 franc. The euro fell by the same margin versus the Swiss currency, and against the dollar it fell as low as $1.4323.
Spot gold hit a new peak at $1 622.49 an ounce and was up 1.1% at $1 616.00.
Gold was on track for its biggest monthly gain since April on concerns over eurozone debt levels, as well as the US budget negotiations.
On Wall Street, the Dow Jones industrial average was down 0.34%, Standard & Poor’s 500 fell 0.27% and the Nasdaq Composite Index was down 0.14%.
MSCI’s all-country world equity index fell 0.4%.
European shares also slipped, snapping a four-day winning run, with banks falling on renewed worries about eurozone peripheral debt as well as the US political gridlock.
The pan-European FTSEurofirst 300 was down 0.29% and the Stoxx Europe 600 bank index fell 2.8%.
Longer-dated US Treasury yields rose and European shares lost ground as the debt impasse in Washington stirred more worries that political wrangling between lawmakers will prompt a cut in the United States’ AAA credit rating.
The benchmark 10-year US Treasury note was down 3/32 in price to yield 2.98%.
Brent oil futures dropped below $118 a barrel after the weekend breakdown of US budget talks in Washington, before paring losses. Brent crude for September was 65 cents lower at $118.02 a barrel.
US oil was 81 cents lower at $99.06.
“We have a situation where if they don’t get an agreement on raising the US debt level, that will be bearish for all assets,” said Robin Bhar, analyst at Credit Agricole. “But bizarrely, the weakening dollar is supporting commodities.”
