The mood in financial markets was cautious on Monday as the partial shutdown of the U.S. government entered a seventh day and lawmakers appeared to be making little headway in raising the country's debt ceiling.
Stocks drifted lower and the price of oil dropped sharply as traders became nervous about the standoff in Washington, particularly over the debt ceiling. The U.S. has to raise its debt ceiling by Oct. 17. If it doesn't, the world's largest economy faces the possibility of defaulting on its debts, a move that would send shockwaves around the global economy and through financial markets.
Though most analysts think a deal to avoid default will be agreed on in time, investors are fidgety — uncertainty discourages investors from buying into risky assets, such as stocks. On Sunday, Republican House of Representatives Speaker John Boehner ruled out a vote on a straightforward bill to raise the government's borrowing authority without concessions from President Barack Obama before the deadline.
"As the partial shutdown of the U.S. government enters week two, there is little sign that the fiscal stalemate in Washington is being broken," said Neil MacKinnon, global macro strategist at VTB Capital. "Investors are on the sidelines until there is greater clarity or a last-minute resolution between the White House and the Republicans ahead of the debt ceiling deadline."
In Europe, the FTSE 100 index of leading British shares was down 0.3 percent at 6,436, while Germany's DAX fell 0.3 percent to 8,595. The CAC-40 in France was 0.1 percent lower at 4,161.
In the U.S., the Dow Jones Industrial Average was down 0.5 percent at 14,993 while the broader S&P 500 index fell 0.4 percent to 1,683.
The focus of attention in financial markets will likely remain on developments in the U.S. capital. Comments from leading participants, such as Boehner and President Barack Obama, could potentially be big market-movers.
"Events in Washington are likely to continue to dominate global markets in the week ahead," said Alan Ruskin, an analyst at Deutsche Bank.
The dollar has also been on the defensive amid the budget fallout. On Monday, the euro was flat at $1.3560 and the dollar 0.3 percent lower at 97.04 yen. Oil prices fell sharply, though, with the benchmark New York crude rate down another $1.54 at $102.30 a barrel.
Earlier in Asia, Japan's Nikkei index tumbled by 1.2 percent to close at 13,853.32. Hong Kong's Hang Seng index dipped 0.7 percent to 22,973.95. Trading was nearly flat on South Korea's Kospi, which fell 0.1 percent to 1,994.42. China's markets were closed Monday for a public holiday.
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