US and EU fiscal woes weigh on stocks

Investors unnerved by hint of recession in Japanese economy

Monday 18:30 GMT. Investors are starting the week in timid mood as worries about the looming Washington’s budget negotiations and a meeting in Europe to discuss a bailout programme to Greece is weighing on sentiment.

The FTSE All-World equity index is nearly flat after the FTSE Eurofirst 300 closed 0.3 per cent lower.

The dollar index is also little changed as the US government bond markets are closed for Veterans’ Day, resulting in thinner trading volumes than usual .

On Wall Street, the S&P 500 is see-sawing, trading up 0.3 per cent in early afternoon hours. A a batch of M&A moves, including Sherwin-Williams’ offer to buy Comex for $2.3bn, including debt, is helping support gains.

The broad measure of US stocks is sitting at its 200-day moving average of 1,381 points. Closing below that mark could indicate a further decline in the index, according to technical analysts.

The S&P 500 has lost about 3.5 per cent since Barack Obama was re-elected president of the United States last Tuesday, as worries over the country’s fiscal cliff of tax increases and lower government spending has intensified.

If lawmakers in Washington cannot agree a budget compromise over the next weeks then the automatic tax rises and spending cuts may push the world’s biggest economy back into recession.

Still, data released last Friday showed US household confidence sits at a five-month high, providing underlying economic support.

Analysts noted the US Federal Reserve also remains in the background with its QE3 programme of asset purchases for an unlimited period of time, which may provide another support for the market.

There has also been some better news of late from the world’s second-biggest economy.

On Monday, upbeat trade figures from China, released over the weekend, showed the country’s exports in October jumped 11.6 per cent from a year earlier while its trade surplus widened to $32bn, the biggest in almost four years.

That follows last week’s better-than-expected industrial production, retail sales and inflation data and suggest China is emerging from its slowdown, a development benefiting commodities. Copper is up 0.3 per cent to $3.46 a pound, while Brent gave up earlier gains and is trading little changed on the day at $109.33 a barrel.

Gold prices also erased and earlier advance and the precious metal was declining $2 to $1,728 an ounce.

In contrast, Japan’s output shrank an annualised 3.5 per cent in the third quarter, while India’s industrial production during September came in lower than forecasts.

The Nikkei 225 in Tokyo shed 0.9 per cent. The Shanghai Composite outperformed regional peers as the export data were joined by news of measures to boost investment in equities leaving the index up 0.5 per cent.

In Europe, one factor suppressing investor confidence is the worry over the Greek debt crisis. The Athens parliament on Sunday passed the 2013 budget, a prerequisite for the country receiving its next portion of bailout funds.

But doubts remain about whether lenders are prepared to release the €31.5bn aid tranche as Greece struggles to raise funds to avoid defaulting on a €5bn debt repayment this week.

Analysts at Capital Economics said: “Aside from digesting the news from Monday’s euro-zone finance ministers’ meeting, markets will be closely watching Tuesday’s Greek Treasury bill auction. With Greece unlikely to receive its next bail-out loan until the end of the month, a bad auction could increase the chances of the government defaulting on the €5bn of Treasury bills which mature on Friday.”

The euro, which closed on Friday at a two-month low of $1.2708, is changing hands at $1.2712. German 10-year Bund yields are steady at 1.35 per cent, while Spanish benchmarks, often considered a proxy for eurozone debt tensions, are up 6 basis points to 5.88 per cent, the highest since early September.

Additional reporting by Jamie Chisholm in London.

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