Most major markets declined in Asia on Tuesday, with sentiment generally suppressed in the shadow of U.S. monetary and fiscal policy uncertainty. In Japan, without any major domestic news, the Nikkei edged down 0.07 percent to 14,732.61, and the yen weakened slightly to 98.785 against the dollar. In Hong Kong, the Hang Seng fell 0.82 percent to 23,179.04, and in Shanghai, the Composite fell 0.61 percent to 2,207.53. In India, the Mumbai Sensex edged up 0.1 percent to 19,920.21. In Australia, the ASX All Ordinaries fell 0.31 percent to 5,229.50.
European markets generally advanced in midday trading. In the U.K., the FTSE 100 was up 0.27 percent; in Germany, the DAX was up 0.27 percent; in France, the CAC 40 was up 0.76 percent; and the Euronext 100 index was up 0.58 percent. The euro was trading at 0.7423 against the dollar.
U.S. futures were mixed ahead of the opening bell. At 8:40 a.m.: DJIA: +0.03%, S&P 500: –0.02%, NASDAQ: +0.16%.
Here are three stories to keep an eye on.
1. U.S. Fiscal Debate
The U.S. Congress has until the end of the month to pass a funding measure for the government or else face a shutdown. Last Friday, House Republicans passed a measure that would fund federal operations through December but would also defund the Affordable Care Act. The provision to defund Obamacare is widely expected to be removed in the Democrat-controlled Senate before being sent back to the House. Once back in the House, GOP lawmakers could add the provision again if they want and send it to President Obama, but the president has already said he would veto the measure. It is highly unlikely that the House would be able to find the votes to override the veto.
All told? It’s another high-stakes game of political roulette (or trench warfare — any number of metaphors work at this point) that will probably not produce results that are favorable for the American people. And, as always, policy uncertainty in the U.S. has infected financial markets around the world with uncertainty.
2. Ifo Business Climate Index
The Ifo Business Climate Index climbed for the fifth consecutive period in September, according to the Center for Economic Studies at the Ifo Institute. The index climbed marginally, from 107.6 to 107.7; the current situation index declined from 112 to 111.4, and the expectations index increased from 103.3 to 104.2.
3. ECB’s Draghi: Will Try Anything to Maintain Interest Rates
Speaking before the European parliament, Mario Draghi, the head of the European Central Bank, discussed the current state of European banking and what steps were likely to be taken in the near future.
The head of the ECB said that excess liquidity levels had to be monitored closely as they dropped toward levels where they could fuel rising market interest rates, also mentioning the possibility of guaranteeing additional lending from the ECB to banks in order to show the central bank’s commitment to keeping rates low.
Draghi’s main concern is in maintaining the efficacy of the forward guidance put forth by the bank earlier this year, by which he stated that interest rates would remain at their historic lows of 0.5 percent for an extended period of time. As signs of an economic recovery begin to pile up, many believe that the bank will be forced to raise interest rates sooner than expected. In addition, even if they do not, market interest rates could rise anyway, making it harder for businesses to obtain access to capital… (Read more.)