Stocks Muted After U.S. Government Shutdown
January 22 2018 - 9:16AM
Dow Jones News
By Riva Gold and Kenan Machado
-- Dollar edges lower after government shutdown
-- Euro buoyant on German coalition talks
-- Treasury yields keep climbing
Global markets showed a muted reaction on Monday as a U.S.
federal government shutdown was poised to stretch into a third
day.
The Stoxx Europe 600 edged up 0.2% midday after a mixed finish
in Asia. Futures pointed to a flat opening for the S&P 500 and
a 0.2% dip for the Dow Jones Industrial Average, while the WSJ
Dollar Index, which tracks the dollar against a basket of 16 other
currencies, edged down 0.2%.
Lawmakers on Sunday failed to end a federal government shutdown
which began after the Senate rejected a one-month spending bill.
The Senate is expected to hold a procedural vote at noon EST Monday
on a measure that would keep the government funded through Feb. 8,
but it isn't clear if it will have enough support to advance.
While the shutdown could sideline significant numbers of federal
employees and government contractors and potentially dampen
quarterly growth figures, many investors said it appeared unlikely
to disturb the robust global economy that has helped power stocks
and temper volatility.
"The market is taking a slight pause here," said Larry Hatheway,
group chief economist at GAM Holding, "but it's a little hard to
see lasting economic impacts or even particularly durable market
impacts from previous shutdowns."
In the seven other shutdowns that occurred in the past 35 years,
the S&P 500 on average rose in the week leading up to the
shutdown and then subsequently slipped four of seven times, with
declines averaging 1% over a three-day period, according to Sam
Stovall, chief investment strategist at CFRA Research. However, the
S&P 500 then took less than two weeks to get back to
break-even, he noted.
Others said it was unlikely to become a real source of
volatility unless debt ceiling concerns escalate, but that won't
happen until around March.
Yields on 10-year Treasurys inched up on Monday to 2.652% from
2.639% on Friday, which was its highest afternoon yield since July
2014. German bund yields rose to 0.514% from 0.506%. Yields move
inversely to prices.
That came after Angela Merkel 's bid to form her fourth
government cleared what had been billed as its highest hurdle
Sunday after the Social Democrats voted in favor of entering formal
coalition talks with the German leader's conservative bloc. The
euro edged up 0.2% to $1.2242.
In European stocks, the banking sector was among the best
performers as government bond yields climbed. Shares of UBS Group
lagged behind, however, falling 1.3% after the Swiss bank said
charges related to the U.S. corporate tax overhaul pushed it into a
fourth-quarter loss.
Shares of Sanofi fell 3.4% after the French drugmaker said it
would buy hemophilia drugmaker Bioverativ Inc. for more than $11.5
billion. The Wall Street Journal reported Sunday the deal would
value the former Biogen unit at $105 a share, representing a
premium of about 63% to where Bioverativ closed trading Friday.
U.K. bookmakers' shares fell on reports that the U.K. government
is leaning toward a change in the threshold for betting terminals.
Shares in Ladbrokes Coral were off 6.3% while William Hill fell
11%.
U.S. corporate earnings reports continue this week with 79
S&P 500 companies reporting, according to FactSet, and will be
closely watched by investors, particularly the commentary from
chief executives following the tax overhaul.
"I really want to know what they're going to do with this extra
cash: buyback stock, increase dividends, make acquisitions, pay out
one-time bonuses?" said Sandy Villere III, portfolio manager at
Villere & Co. "We really need to know if companies are going to
hoard the money to themselves and shareholders or put it out into
the economy," he said.
Earlier, Asian stocks showed little reaction to the partial
shutdown of the U.S. federal government. Japan's Nikkei Stock
Average was flat while Hong Kong's Hang Seng Index rose 0.4% to
another record close.
Shares of some Apple suppliers declined across the region,
however, dragging down some tech-heavy indexes.
South Korea's Kospi fell 0.7% amid a 2.2% drop in shares of
index heavyweight Samsung Electronics. The company's stock fell
against a backdrop of increased caution over demand for rival
Apple's most expensive iPhone.
Kenan Machado and
Harriet Torry
contributed to this article.
Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at
kenan.machado@wsj.com
(END) Dow Jones Newswires
January 22, 2018 09:01 ET (14:01 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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