Hong Kong: Asian stocks fell on Monday as US talks aimed at raising the country’s debt limit fell apart, raising the spectre of a default, although losses were muted on expectations a deal would be reached.
The crisis weighed on the dollar, sending it to its lowest level against the yen since just after the 11 March earthquake in Japan, which prompted an intervention by Tokyo and its G-7 partners.
Hong Kong fell 0.64%, Tokyo was 0.63% lower by the break, Sydney shed 0.91%, Shanghai lost 0.50% and Seoul was 0.71% lower.
With just over a week to go before the US runs out of money to repay its debt, President Barack Obama and his Republican opponents remain deadlocked on talks over a deficit-cutting budget that will allow for more borrowing.
As the August 2 deadline looms to raise the country’s $14.3 trillion debt limit, there are fears that a default by the world’s biggest economy will send shudders through world markets that could lead to another global recession.
Obama has described such a scenario as “Armageddon”.
However, the two sides are unable to agree on a budget, with the Republicans adamant that savings must come solely from cost-cutting with no tax rises, while the Democrats want some tax rises for the rich and corporations.
There had been hopes last week that a deal was close when Obama threw his weight behind a tentative plan.
But the crisis deepened over the weekend when the man leading Republican negotiations, John Boehner, refused to return calls to Obama, saying that the White House had shifted the goalposts and had made fresh tax-raising demands.
“With just days to go now before the 2 August deadline, investors who had previously written the impasse off as political games are now going to seriously consider the possibility of a default,” GFT Global Markets director of global dealing operations Martin Slaney said.
However, despite rising concerns, traders agree that the Republicans, Democrats and the White House will reach an agreement to avoid a default.
“We’re still of the view that the ‘too big to fail´ attitude will mean the debt ceiling is raised, but it’s becoming more evident that it’s going to take longer than expected and that one side is probably going to have to give up more ground than they had wanted,” said IG Markets chief market strategist Ben Potter.
On currency markets, the dollar fell as low as ¥78.12 in early trade, the lowest level since 17 March when the greenback slid to the 76-yen range, leading to the intervention.
It recovered to ¥78.36 by 7:50am, in Tokyo against 78.52 yen in New York late Friday.
The euro was at ¥112.61, against 112.69 while it was also up at $1.4397 from $1.4357.
Oil fell on concerns that demand would fall off in the event of another financial crisis.
New York’s main contract, West Texas Intermediate light sweet crude for September delivery, sank $1.08 to $98.79 a barrel, and Brent North Sea crude - also for September delivery -- dropped 60 cents to $118.07.
Gold opened in Hong Kong at $1,611.00-$1,612.00 an ounce in Hong Kong, up from Friday’s day’s finish of $1,585.00-$1,586.00. The precious metal surged to a record high $1,623.00-$1,624.00 in pre-trade.