stock data business XXX   Picture: THINKSTOCK
Picture: THINKSTOCK

LONDON — A lack of progress by US legislators in budget and debt-ceiling talks rattled investors on Monday, sending European shares to a four-month low and pushing the dollar and oil down.

US stock index futures suggested Wall Street would also head lower later in the day after neither side in Congress offered any signs of a compromise at the weekend.

Trading remains relatively calm, suggesting confidence that a deal to end a partial government shutdown and raise the US borrowing limit will emerge. But with only 10 days left to avoid a debt default, some investors are heading for the exit and few look to be making fresh bets.

"Until we get some sort of resolution, a lot of investors are standing back, keeping their money off the table just in case the unthinkable happens," Hargreaves Lansdown’s head of equities, Richard Hunter, said.

European stocks fell 0.9% by mid-morning to touch their lowest level in a month following a weaker session in Asia, which saw MSCI’s broadest index of Asia-Pacific shares outside Japan drop 0.6%. Britain’s FTSE 100 index was down 0.9%, Germany’s DAX index fell 1.1% and France’s CAC-40 was also 1.1% lower.

Global shares as tracked by MSCI shed 0.4%, extending a two-week run of losses that has knocked the world index from five-year highs that were hit on the hope of a worldwide economic recovery, fuelled by loose monetary policies.

Wednesday’s release of minutes from September’s Federal Reserve policy meeting, which could show more about why the central bank decided not to scale back its monetary stimulus, also weighed on sentiment.

‘Playing chicken’

Strategists said all eyes were on Congress as the hardline from both sides heightened the prospect that political manoeuvering over the budget would get caught up with the crucial issue of raising the debt ceiling, delaying a deal.

"Every day we don’t see a funding deal done in the US brings us one step closer to that funding deal being packaged with some sort of agreement on the debt ceiling, and that’s playing chicken," JP Morgan Asset Management global market strategist David Lebovitz said.

Nerves were not helped when Republican house speaker John Boehner on Sunday said the debt ceiling would not rise without a "serious conversation" about what was driving the debt.

Democrats stuck to their stance that it was irresponsible and reckless to raise the possibility of a default.

Despite the deadlock, share-market volatility gauges have so far been held in check, although they have begun to edge higher.

The CBOE Volatility Index, known as the market’s fear gauge, rose to 16.73 at the end of last week from 13.12 on September 20, a sign of increased worry, although this level is still considered low.

The standoff pushed the dollar down 0.15% against a basket of major currencies to 80, leaving it not far from an eight-month low of 79.627 hit last week.

The dollar shed 0.5% to ¥96.92, with the euro gaining 0.1% to $1.3575, close to an eight-month high.

Core government bonds, a haven in times of uncertainty, gained, with 10-year German yields dropping 2.1 basis points to 1.81%. Despite the risk of a possible default, US 10-year debt prices also gained, as the effect of the partial government shutdown on growth pushes back expectations on when the Fed will begin tapering its monetary stimulus.

Gold solid

The weaker dollar helped gold edge up 0.1% to around $1,312 an ounce, suggesting traders remained wary of reading too much into the US impasse.

"The general view on it is that a solution will be found and we will probably see a rebound in markets ... and that is not going to be a very favourable environment for gold," Credit Suisse analyst Karim Cherif said.

Gold has lost some of its safe-haven appeal since political tension in Syria eased and traders said the partial US shutdown did not spark a flurry of safe-haven bids.

A softer tone in oil prices was supported by the resumption of production in the Gulf of Mexico after a storm.

Brent crude shed $1.25 a barrel to trade around $108.20, while US crude was down $1.26 to $102.58 a barrel, after ending last week up 0.9%.

Reuters