S&P Futures to Oil Sink on Shutdown Concern; Dollar Slips

Standard & Poor's 500 Index futures slid and contracts on Asian equity gauges retreated on concern the U.S. government is headed for a partial shutdown amid a political stalemate over the budget. The dollar weakened against the yen while crude oil and copper futures slumped.

S&P 500 futures lost 0.8 percent by 7:22 a.m. in Tokyo, after the measure slid 1.1 percent last week in its first decline this month. Contracts on Australia's S&P/ASX 200 Index dropped 0.2 percent and Nikkei 225 Stock Average (NKA) futures lost 0.5 percent by 3 a.m. in Osaka. The greenback retreated 0.3 percent to 97.91 yen, while U.S. Treasury futures climbed. West Texas Intermediate oil and copper futures sank 0.8 percent.

The House of Representatives voted 231-192 yesterday to stop many of the Affordable Care Act's central provisions for one year, tying it to an extension of U.S. government funding through Dec. 15. Should the Senate reject the bill today the government could be shut down from tomorrow. Italy's government is on the verge of collapse after allies of former leader Silvio Berlusconi said they'd quit the cabinet. Data on Chinese manufacturing will be released over the next two days.

"Political impacts, with the U.S. government close to shut down, and the Italian coalition fragmenting, will drive currency today," Sharon Zollner, a senior economist in Wellington at ANZ Bank New Zealand Ltd., wrote in a note to clients. "But it is the prospect of a technical default by failing to raise the debt ceiling that is of most concern to financial markets."

Boehner's Choices

Should the Senate turn down the House bill, as Democrats have promised to, House Speaker John Boehner would have four main choices -- two of which avert a shutdown. He could pass the Senate bill with mostly Democratic votes or attempt a short-term funding extension to keep the government open past Oct. 1, when fiscal year 2014 begins.

The other two options lead to a shutdown. Boehner could add health-law provisions to the spending bill and ask the Senate to go along, which Senate Democratic leaders have said they would reject, or do nothing and wait to see the political fallout.

Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, Obama said in a televised statement Sept. 27. Closing the government would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, as government workers are furloughed, according to economists from Moody's Analytics Inc. to Economic Outlook Group LLC.

Aussie, Yen

The Australian and New Zealand dollars were little changed against the greenback. Australia's currency, known as the Aussie, bought 93.10 U.S. cents, set for a 4.6 percent advance in September, the first monthly gain since March. New Zealand's dollar, dubbed the kiwi, weakened 0.1 percent to 82.69 cents, still up 7 percent in the month for the steepest gain among 16 major currencies tracked by Bloomberg.

The yen jumped 1.1 percent versus the dollar last week, the most in more than a month, and touched a one-month high today.

The currency also gained after Japan's Finance Minister Taro Aso damped speculation last week that the government will cut the corporate tax rate. A report today will show industrial production in the world's third-largest economy rose 0.5 percent in August from a year earlier, after rising 1.8 percent in July, according to the median of 20 estimates in a Bloomberg survey of economists.

Futures on Hong Kong's Hang Seng Index fell 0.6 percent in their most recent trading session, while contracts on the Hang Seng China Enterprises Index dropped 0.8 percent. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York lost 0.6 percent Sept. 27, extending the measure's weekly drop to 0.4 percent.

Treasury Futures

HSBC Holdings Plc and Markit Economics may confirm today that their manufacturing purchasing managers' index for China delivered a reading of 51.2 for September, a six-month high. Fifty is the threshold between contraction and expansion. China releases its official manufacturing PMI tomorrow, with economists surveyed by Bloomberg predicting an increase to 51.6, from 51 in August.

Futures on 10-year U.S. Treasuries gained 0.3 percent today, a second day of gains, while contracts on five-year notes rose 0.2 percent. Ten-year yields fell 11 basis points, or 0.11 percentage point, to 2.62 percent in the five days ended Sept. 27.

Treasuries are little changed this quarter, according to the Bloomberg U.S. Treasury Bond Index. Investors should expect $23.5 billion in selling of equities and buying of bonds as pension fund managers rebalance their portfolios at the end of the third quarter, Ramon Verastegui, head of engineering and strategy at Societe Generale SA in New York, wrote in a Sept. 25 note.

Consumer Data

A Commerce Department report Sept. 27 showed consumer spending in the U.S. rose in August for a fourth consecutive month, climbing 0.3 percent.

Separate data at the end of last week showed confidence among consumers declined to a five-month low in September as Americans' views on the economy dimmed. The Thomson Reuters/University of Michigan final index of sentiment decreased to 77.5 this month from 82.1 in August, compared with a median estimate for a drop to 78 seen by economists in a survey.

Italian government bonds declined Sept. 27, extending a weekly loss, as the nation auctioned 6 billion euros ($8.1 billion) of debt maturing in 2018 and 2024. Yields on the country's 10-year securities climbed nine basis points to 4.42 percent. Italy's Rome-based Treasury sold 3 billion euros of the 2024 bonds at an average yield of 4.5 percent, more than the 4.46 percent at a previous auction held Aug. 29.

Oil Slides

Italy's leaders stopped short yesterday of dissolving Prime Minister Enrico Letta's five-month old administration, invoking procedure after the defection led by Deputy Premier Angelino Alfano. Berlusconi said he will push for snap elections, while Letta has said he plans a confidence vote in parliament Oct. 2 to seek a new majority.

WTI crude oil slid to $102.07 a barrel, headed for the lowest close since July 3. The five permanent members of the United Nations Security Council agreed on a resolution to find and destroy Syria's chemical weapons. The agreement does not specify how the UN will determine whether President Bashar al-Assad's administration has complied.

Gold rose 0.2 percent to $1,339.37 an ounce in early trading, after gaining 0.8 percent last week. The precious metal has lost 4 percent in September, the first monthly drop since June, and added 8.5 percent this quarter, data compiled by Bloomberg show. Silver gained 0.2 percent today.

Copper futures tumbled for the first time in four days today. The S&P GSCI Spot Index (SPGSCI) of raw materials prices fell 0.1 percent Sept. 27, capping a weekly decline of 0.4 percent.