U.S. Stock Futures, Dollar Decline as Gold Gains on Debt Concern

Saturday, 23 Jul 2011 06:21 AM

 

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July 25 (Bloomberg) -- U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will slump after rallying within 1.4 percent of a three-year high, as the dollar dropped and gold climbed as failure to raise the federal debt limit intensified concern of a default.

S&P 500 futures expiring in September declined 0.9 percent to 1,328.90 at 7:14 a.m. in Tokyo, and Dow Jones Industrial Average futures lost 112 points, or 0.9 percent, to 12,509. The dollar slipped 0.7 percent versus the Swiss franc, 0.2 percent against the yen and 0.1 percent versus the euro. Gold futures added 0.5 percent to $1,609.20 an ounce.

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. The impasse has boosted the chance S&P will cut the U.S. credit rating from AAA within three months to 50 percent, the company said July 21.

“There’s a real risk for the markets and the economy,” Peter Sorrentino, a senior money manager at Huntington Asset Advisors in Cincinnati, said in a telephone interview. The firm oversees $14.8 billion. “The market just cannot let go of the fears about creditworthiness and liquidity.”

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. 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.

Whipsawing Markets

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 President Barack 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.

Republicans prepared to force action on a shorter-term extension of the limit than Obama has requested, defying a veto threat. The president would veto a measure that doesn’t extend the limit into 2013, White House Chief of Staff Bill Daley said in an interview on NBC’s “Meet the Press” yesterday.

Daley warned that “markets around the world” would react negatively to a short-term measure offering less than $2.4 trillion in borrowing authority.

Starting Deliberations

U.S. Treasury Secretary Timothy F. Geithner said he hopes lawmakers can agree on the framework of a debt-limit agreement because the House of Representatives must start deliberations July 25 to meet the Aug. 2 deadline.

“They need to get this process moving in the House by Monday night,” Geithner said yesterday on ABC’s “This Week” program. “To achieve that deadline, they need to have a framework that they know with complete confidence will pass both houses of Congress that is acceptable to the president.”

Boehner, an Ohio Republican, said on the “Fox News Sunday” program that while he’d prefer a bipartisan package, “if that’s not possible,” House Republicans are “prepared to move on our own.” “There is going to be a two-stage process,” Boehner said. “This is about what’s doable.”

Both S&P and Moody’s Investors Service are weighing a downgrade of the U.S. credit rating. Even if the country defaults on some obligations after Aug. 2 and pays bondholders, S&P said short- and long-term interest rates would rise by 0.50 percentage point and 1 point, respectively.

“The rating agencies are driving the bus here,” Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc., said in a telephone interview. His firm oversees $4 billion. “What’s going to matter is what they say.”

--Editors: Nick Baker, Chris Nagi

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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