U.S. equity futures and Treasuries dropped while gold rose to a record as President Barack Obama and Congress failed to reach a deal on raising the debt limit, intensifying concern the nation will default. Asian shares fell.
Standard & Poor's 500 Index futures expiring in September lost 0.9 percent to 1,329.40 at 9:19 a.m. in Tokyo, indicating the measure will decline after rising within 1.4 percent of a three-year high. The MSCI Asia Pacific Index of shares in the region slipped 0.6 percent. Yields on 10-year Treasuries gained three basis points. Gold added as much as 1.4 percent to $1,624.30 an ounce. Oil fell 0.8 percent.
House Speaker John Boehner told Republicans that there's no agreement on a plan for raising the ceiling before a default threatened for Aug. 2. A Republican congressional official said Boehner, speaking by telephone to lawmakers, is reporting that discussions are continuing. S&P said last week the impasse has boosted the chance it will cut the U.S. credit rating from AAA within three months to 50 percent.
"Stock markets around the globe will look to price in a greater uncertainty premium on account of political squabbles in the world's largest economy and the increasing risk that it may lose its sacred AAA rating," Mohamed A. El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., wrote in an e-mail. His firm is the world's biggest manager of bond funds. "A last-minute political compromise will avoid a default but will leave the AAA rating extremely vulnerable," he said.
Japan, Australia
Japan's Nikkei 225 Stock Average fell 0.8 percent, retreating from its highest level since July 8, and South Korea's Kospi index slumped 0.8 percent. Australia's S&P/ASX 200 Index slipped 0.6 percent.
Oil retreated for the first time in five days in New York, sliding to $99.04 a barrel. Corn futures sank 1.9 percent to $6.7225 a bushel. Wheat fell 1.5 percent to $6.82 a bushel.
"There's a broad risk that it takes down global equities and commodity prices and causes a big selloff in the dollar," Barry Knapp, head of U.S. equity strategy in New York at Barclays Plc, said in a telephone interview. "This is the center of capital markets and the global economic universe, so if we can't get our act together and the market truly does become concerned about our political will, we could get a major global risk event."
Stocks Whipsawed
The S&P 500 closed at 1,345.02 on July 22. When the measure climbed to 1,363.61 on April 29, it was the highest level since June 2008. The Dow Jones Industrial Average slid 0.3 percent on July 22 to 12,681.16, paring its weekly increase to 1.6 percent. Dow futures fell 103 points, or 0.8 percent, to 12,518 today. U.S. equities rallied last week as Europe pledged support for Greece to end the region's debt crisis and companies from Apple Inc. to Morgan Stanley and Advanced Micro Devices Inc. beat earnings projections.
Negotiations in Washington over the nation's debt limit have whipsawed U.S. stocks. The S&P 500 jumped 1.6 percent on July 19, the biggest gain since March, amid optimism Obama and congressional Republicans would agree to raise the ceiling before an Aug. 2 deadline. Stocks fell the next day on concern a Senate plan to help the nation avoid default faced resistance from House Republicans.
Treasuries fell, extending last week's decline, its first in three weeks. Yields on benchmark 10-year notes rose three basis points, or 0.03 percentage point, to 2.99 percent from 2.96 percent on July 22, according to Bloomberg Bond Trader prices. That's below the five-year average of 3.71 percent.
Avoiding Default
"The U.S. should avoid default but may get downgraded by the ratings agencies if the White House and Congressional Republicans are unable to agree on significant medium-term fiscal tightening," Mansoor Mohi-uddin, the Singapore-based chief currency strategist at UBS AG, wrote in a note to clients.
Investors outside the U.S. own $4.51 trillion in U.S. Treasuries, or about 50 percent of the marketable government debt outstanding, according to the Treasury Department.
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