(Reuters) – Global equity markets and the dollar fell on Wednesday as the U.S. government shutdown entered its second day and as data showed U.S. private employers added fewer jobs than expected last month.
Although equities rose on Tuesday on hopes the first partial shutdown of the U.S. government in 17 years would be short-lived, one day later concerns about the economic impact grew as no signs emerged of an end to the budget standoff in Washington.
Market volatility will likely increase the longer the shutdown persists. Investors are also looking for an indication of how negotiations play out over the looming need to raise the U.S. government’s debt ceiling. The ceiling is far more important than the shutdown, as it could lead to an unprecedented default by the United States, though that is considered unlikely.
“Before the consensus was that any shutdown would be short-lived. But the positions have hardened over the last few days,” said Susanna Gibbons, a portfolio manager at RBC Global Asset Management in Minneapolis. “Some increased volatility for the next couple of weeks would not be surprising.”
Data showing U.S. private employers added 166,000 jobs in September, below forecasts for 180,000 new jobs, added to investor jitters. The private-sector report has taken on added significance this week because the government shutdown means that the monthly payrolls report due on Friday from the Labor Department may be delayed.
“If the numbers had come up really, really strong, perhaps people would overlook the problems in Washington. But with the numbers coming in slightly below expectations, it renews concern that the recovery could start to peter out,” said Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.
MSCI’s world equity index .MIWD00000PUS, which tracks shares in 45 countries, fell 0.13 percent to 384.12 points, one day after gaining 0.7 percent.
The Dow Jones industrial average .DJI was down 58.56 points, or 0.39 percent, at 15,133.14. The Standard & Poor’s 500 Index .SPX was down 1.13 points, or 0.07 percent, at 1,693.87. The Nasdaq Composite Index .IXIC was down 2.96 points, or 0.08 percent, at 3,815.02.
In Europe, the FTSEurofirst 300 .FTEU3 index of top regional shares ended 0.7 percent lower at 1,247.14, while the euro zone’s blue-chip Euro STOXX 50 .STOXX50E index was down 0.5 percent at 2,918.31.
The dollar fell on expectations the shutdown will further delay the Federal Reserve’s plans to scale back its asset-purchase program.
The head of the Federal Reserve Bank of Boston, Eric Rosengren, said the government shutdown could further delay cuts to the bond-purchase program because of the lack of official data on the economy.
The dollar index .DXY, which tracks the greenback against six major currencies, fell as low as 79.781, its lowest level since February. It was last trading at 79.89, down 0.31 percent.
Safe-haven U.S. government debt prices rose. The benchmark 10-year U.S. Treasury note rose 7/32 in price to yield 2.6227 percent.
The cost of insuring U.S. government bonds against default for the next year also rose, bringing the cost of protecting $10 million of debt to $35,500 – the highest since August 31 and above the rate for five-year insurance.
Because it usually costs more to buy longer-term default insurance, the current level is considered a classic sign of credit stress, reflecting concerns over whether the United States will be able to raise the federal government’s debt limit in coming weeks.
