Asian stock markets cautious as U.S. default looms
Asian stocks marked time on Wednesday with nervous investors cautiously optimistic or just hoping that frantic talks in Washington to avert a U.S. debt default could lead to a deal before the Oct 17 deadline.
U.S. senate leaders are continuing to negotiate legislation to raise the nation's borrowing authority and provide temporary government funding. Lawmakers said a deal was close, but there were still details to be worked out.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent, having drifted in and out of positive territory. Still, it remained not far off a five-month peak set on Tuesday.
Tokyo's Nikkei eased 0.2 percent, while Australian and South Korean shares were flat. Hong Kong shed 0.4 percent.
U.S. S&P 500 e-mini futures rose 0.5 percent, recovering most of Tuesday's losses.
Until an outcome is reached, markets will be extremely choppy, said Stan Shamu, market strategist at IG in Melbourne.
"Nerves will be playing on traders' minds as they will continue to be on U.S. political headline-watch," he added.
Hopes of a breakthrough weighed on the safe-haven yen, allowing the dollar to climb 0.3 percent to 98.43. The euro advanced 0.2 percent to 133.11 yen.
That helped the dollar index, which tracks the greenback's performance against a basket of currencies, hold its ground at 80.495, not far off a one-month high of 80.703 set on Tuesday.
Commodity traders were reluctant to do much, leaving copper, U.S. crude and bullion little changed. Copper last traded up 0.1 percent at $7,250 a tonne, while U.S. crude was flat at $101.26 a barrel. Spot gold was also steady at $1,280.76 an ounce.
RESILIENT
If Washington doesn't reach a deal by October 17, the government will by law no longer be able to add to the national debt, and will have to rely on incoming revenue and about $30 billion in cash to pay the nation's many obligations.
That money is expected to run out quickly and Washington would start missing payments in the weeks ahead. A global financial crisis could follow if investors decide that U.S. debt, used as collateral for trillions of dollars in financial deals, no longer provided adequate security.
Fitch Ratings warned on Tuesday that it could cut the United States' prized AAA credit rating.
With a large interest payment due on Oct 31, and $58 billion in other obligations coming due the following day, many analysts have circled Oct 31 as a possible date for default if Congress has still failed to reach an agreement.
Elliot Clarke, an economist at Westpac Bank in Sydney, said the key date to watch out for is not the Oct 17 deadline but November 15 when $30 billion of interest payments are due.
"Moody's and S&P have ruled that a default will only occur if interest payments are missed. Consequently 15 November becomes the critical date," he said.
"How the market will respond to such a scenario is unknown as we have never really experienced such an event."
That is one reason why markets have so far been surprisingly resilient as investors have found it hard to price in a U.S. default, traders said.
