US debt doubts keep lid on shares, yen rises

Reuters, Monday 14 Oct 2013

Slow-moving talks to avoid a debt default in the United States and weak Chinese export data put a damper on European shares and oil, while yen strengthens

Slow-moving talks to avoid a debt default in the United States and weak Chinese export data kept a lid on European shares and oil on Monday, while the yen rose as some investors moved into safer assets.

Senate negotiations to resolve the US fiscal crisis made progress on Sunday and, while there no guarantees of an end to the government shutdown, many in the market remain hopeful a deal to raise the borrowing ceiling will emerge.

"No one wants to think of the worst-case scenario, so everyone thinks they will make a deal, at least to lift the debt ceiling," said Carsten Brzeski, senior economist at ING.

But with the government set to hit its funding limit in just four days and trading thinned by a US public holiday, investors were showing signs of nerves.

The dollar down 0.3 percent against the safer option of the yen to about 98.29 yen.

"We think the closer we get to the debt ceiling deadline without an agreement, dollar/yen will come under the intensive selling pressure," said Lee Hardman, currency economist at BTMU.

Against a basket of currencies, the dollar slipped 0.1 percent .DXY and was down 0.1 percent against the Swiss franc at 0.9114 francs. The euro rose 0.1 percent to $1.3560.

Liquidity was expected to be light across markets throughout the day with US bond trading closed for the Columbus Day holiday. Currency and stock markets will open as usual.

European shares reflected early uncertainty about events in Washington losing around 0.4 percent .FTEU3 in early trading before trading virtually flat at 0430 ET. Share markets had rallied late last week on signs that a deal appeared to be getting closer. 

World shares tracked by MSCI's world equity index .MIWD00000PUS were also barely moved after markets in Hong Kong and Japan were closed for holidays.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS, which had hit a three-week high on Friday, eased 0.2 percent.

China disappoints 

Adding to the downbeat tone, China said exports dropped 0.3 percent in September from a year earlier against expectations of a 6 percent rise, while annual inflation rate hit a 7-month high of 3.1 percent, limiting scope for rate cuts.

The decline in exports from the world's second largest economy raised questions about the strength of the global recovery, though solid import data for the same month helped offset some concerns.

Brent crude was flat at $111.3 a barrel, while robust Chinese imports of copper helped the metal edge up 0.6 percent to $7,248 a tonne (1 tonne =1.102 metric tons).

Gold was hovering near a three-month low at $1276.80 an ounce as investors chose cash over the precious metal as a safe haven.

In the euro zone, a meeting finance ministers ahead of Tuesday's deadline for member states to reveal their draft budgets was not expected to have much impact on the markets.

Ten-year German yields were little changed on the day at 1.86 percent - not far from a near three-week high of 1.89 percent hit on Friday. German Bund futures were 7 ticks lower at 139.72.

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