The share market is likely to open flat but subject to developments in the US as politicians attempt to cobble together an emergency budget compromise to avert a government shutdown this afternoon.
The December SPI 200 futures contract edged up five points or 0.1% to 5228 after US stocks fell as a midnight deadline in Washington neared with no sign of a deal.
The S&P 500 dropped 10 points or 0.58% to its weakest level in two weeks but finished off its low as traders bet that any government closure will be brief. The Dow lost 128 points or 0.84% and the Nasdaq just 0.28%.
"We are at the mercy of whatever develops in Washington," Michael James, managing director of equity trading at Wedbush Securities in the US, told Bloomberg. "An attempt to prevent a shutdown is not totally unexpected, but some agreement will be better than none."
Congress has until 2pm Australian EST today to pass a spending bill or the US federal government faces a partial shutdown for the first time since 1996. Emergency services would continue to operate but up to 800,000 government employees face being placed on unpaid leave until funding is approved. Overnight, the Democrat-controlled Senate rejected a short-term spending bill approved by the Republican-controlled House of Representatives. Read more here.
All 10 S&P 500 industry groups declined amid concern about a shutdown's likely impact on the economy. Financials, energy stocks and consumer staples were hit hardest. Small caps dodged the worst of the selling - the Russell 2000 index was little changed at -0.04%. The VIX, Wall Street's anxiety gauge jumped 7.4% but remained below levels reached at the end of last month.
The Labor Department said any shutdown will delay Friday's monthly government jobs report as staff are placed on unpaid leave. A measure of business activity in the greater Chicago region released overnight showed an improvement to 55.7 last month from 53 in August.
Mining stock steered European markets lower after yesterday's Chinese manufacturing disappointment and weekend political upheaval in Italy. BHP fell 1.14% in UK trade and 1.01% in the US. Rio Tinto lost 1.44% in the UK and 1.46% in US action. Germany's DAX and Britain's FTSE both lost 0.78%, France's CAC 1.05% and Italy's FTSE MIB 1.2%.
Oil continued to slide towards US$100 a barrel, closing nearly 5% weaker for the month but 6% ahead for the quarter. West Texas Intermediate crude oil for November delivery was lately down 59 cents or 0.6% at US$102.29 a barrel.
Gold gave back some of Friday's gains as the deflationary implications of a US government shutdown sapped demand. Gold for December delivery was recently off $10.60 or 0.8% at US$1,328.60 an ounce.
"A government shutdown is very disinflationary by nature and is not a gold driver," Yves Lamoureux, president of Lamoureux & Co, told MarketWatch.
Base metals were broadly positive ahead of the start of a week-long Chinese holiday today. In London, aluminium rose 0.3%, lead 0.8%, nickel 0.1% and zinc 0.5%. Copper and tin were flat. US copper for December delivery was recently off one cent or 0.3% at US$3.31 a pound.
Spot iron ore for import to China slipped 50 cents or 0.4% to US$131.40 per dry metric tonne.
TRADING THEMES TODAY
WATCHING CONGRESS: Feuding pollies in Washington have until 2pm AEST to approve an emergency spending measure or the US federal government faces a partial shutdown. This is one of those days where the market could run very quickly on any hint of a Washington deal. However, there's little point in staying glued to the news-wires - the XJO will indicate the news before any news outlet. Our futures suggest the market thinks the ASX took its medicine yesterday after US stock indexes finished off their lows, but risk appetite will be restrained by that afternoon deadline. The Reserve Bank holds a rate meeting today, but is highly unlikely to change policy. China closes down from today for Golden Week but the official government manufacturing report for September is released at 11am EST. Let's hope yesterday's HSBC disappointment was a blip.
ECONOMIC NEWS: A busy day ahead for Australasian news includes the Australian manufacturing index at 9.30am EST, retail sales at 11.30am and a Reserve Bank rate decision and statement at 2.30pm; Japanese employment figures and Tankan indexes pre-market; and the official Chinese September manufacturing PMI at 11am. Europe releases employment and manufacturing reports tonight. US highlights include rival manufacturing PMIs, manufacturing prices, construction spending and vehicle sales.
