US stocks, dollar sag after government shutdown

File: During previous government shutdowns - in 1995 and 2013 - US bond yields tended to slip in the first few weeks after the closure. Photo: Pixabay

TOKYO - Wall Street stock futures and the dollar pulled back slightly on Monday after the US government was forced to shut down amid a dispute between President Donald Trump and Democrats over immigration.

But Asian shares remained resilient overall, while US bond yields continued to rise as investors saw limited economic fallout from the standoff in the US capital.

European stock futures are mostly opening slightly higher, with Dax futures up 0.2 percent, and France's Cac futures up 0.05 percent. Britain's FTSE futures are down 0.1 percent.

"After all, people know this is just a political show. Neither Republicans nor Democrats can afford to keep dragging their feet for long ahead of mid-term elections this year," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

MSCI's broadest index of Asia-Pacific shares outside Japan managed to erase slim losses earlier to eke out gains of 0.1 percent, hitting a record high for six days in a row. Japan's Nikkei also ended up 0.03 of a point.

US S&P500 mini futures dipped just 0.1 percent, still clinging near a record high hit on Friday.

A US government shutdown will enter its third day on Monday as Senate negotiators failed to reach an agreement late on Sunday to restore federal spending authority and deal with demands from Democrats that young "Dreamers" be protected from deportation.

READ: US shutdown extended as crunch vote delayed

The Senate set a vote for 12pm. (1700 GMT) on Monday on advancing a measure to provide temporary government funding through Feb. 8, end the shutdown and allow hundreds of thousands of federal employees to return to work.

But it was unclear whether there would be enough Democratic votes on Monday to advance a temporary spending bill.

While many see minimal impact on the economy of a short-term government shutdown, analysts say a prolonged stalemate in Washington could dampen investors' confidence in US assets.

"The markets had not expected this shutdown. Given that US share prices have rallied strongly since the beginning of the year, we have to see if this event is a trigger to change the market trend," said Takafumi Yamawaki, head of Japan fixed income research at JPMorgan Securities.

Yamawaki noted that during previous government shutdowns - two in 1995 and one in 2013 - US bond yields have tended to slip in the first few weeks after the closure.

But so far US Treasuries yields have risen despite the government shutdown, extending their uptrend since September.

The benchmark 10-year yield rose to as high as 2.672 percent, its highest level in three-and-a-half years. A clear break above its double top marked in December last year and March could signal a further rise in the yield, analysts say.

In the foreign exchange market, the dollar's index against a basket of major currencies dropped about 0.2 percent from late last week to 90.465, not far from a three-year low of 90.104 touched on Wednesday, before edging back to 90.63.

The euro opened the day 0.4 percent higher at $1.2275,  but it stopped short of testing Wednesday's three-year peak of $1.2323 and pared back much of the gains to trade at $1.2225.

The common currency was also helped after Germany's Social Democrats (SPD) voted on Sunday to begin formal coalition talks with Chancellor Angela Merkel's conservatives, moving Europe's economic powerhouse closer to a stable government after months of political deadlock.

The safe-haven Swiss franc gained 0.3 percent to 0.9619 franc per dollar. It hit a four-month high of 0.9536 to the dollar on Friday.

The Japanese yen was little changed at 110.83 yen to the dollar, not far from Wednesday's four-month high of 110.19.

Moving in the opposite direction, the Turkish lira eased 0.6 percent to 3.8280 after Turkey's army and rebel allies battled US-backed Kurdish militia in northern Syria, in a campaign that has opened a new front in Syria's civil war.

Oil prices ticked up, pushed higher by comments from Saudi Arabia that cooperation between oil producers who are currently withholding supplies in an effort to prop up the market would continue beyond 2018.

Brent crude futures were at $68.75, up 0.2 percent, from their last close. Brent on 15 January hit its highest since December 2014 at $70.37 a barrel.

U.S. West Texas Intermediate (WTI) crude futures were at $63.53 a barrel, up 0.3 percent from their last settlement. WTI marked a December-2014 peak of $64.89 a barrel on 16 January. 

Benchmark Brent futures advanced 0.2 percent to fetch $68.77 per barrel.

Reuters

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