U.S. stock futures sink as Senators talk sequester

October 14, 2013

MADRID-SPAIN (Oct 14)  U.S. stock-index futures pointed to a sharply lower open for Wall Street on Monday as Senate leaders remained deadlocked over a deal to raise the nation’s debt limit, due to a clash over previously passed budget cuts known as the sequester.

Futures for the Dow Jones Industrial Average  slid 103 points, or 0.6%, to 15,072, while those for the S&P500 -0.68%  fell 11.30 points, or 0.7%, to 1,687.70. Nasdaq futures  traded down 14 points, or 0.4%, to 3,211.50.

With no economic data or major earnings on the calendar for Monday, which is also Columbus Day, investors were left to dwell on the weekend’s political action, or inaction as some were seeing it.

All three futures were off much sharper lows that came out of Asian trading hours, as news trickled out that Democratic Senate leaders were demanding that a debt-limit deal not lock in further sequester cuts. These are due to take effect next year.

“With three days to go before the U.S. Treasury technically runs out of cash to pay the bills, traders are now fearing the worst-case default scenario being played out,” said Ishaq Siddiqi, market strategist at ETX Capital said in a note. “Although many dismiss it as unlikely, with hopes that U.S. lawmakers will strike an 11th-hour deal, traders are showing reluctance to take risks as we head into the deadline on the 17th of October.”

The New York Times said that Democrats wanted the sequester, passed into law as part of the deal resolving the last debt-limit impasse, to last only through mid-November. The Wall Street Journal quoted Republican Senate leader Mitch McConnell as saying, “Senate Republicans will not accept anything that undoes these cuts.”

The latest snag to efforts for an agreement came as McConnell and Senate Majority Leader Harry Reid, a Democrat, negotiated Sunday, with just four days before the U.S. administration expects to run out of funds to meet its obligations. Much of the U.S. government remains shut down for the 13th day, with a bill to restore funding for operations seen as likely to feature in any deal.

“The picture that is emerging is of the Democrats pressing their political advantage to secure further concessions, knowing that public opinion is turning sharply against the Republicans,” said Alvin Tan, foreign exchange analyst at Societe Generale, in a note. “Nonetheless, given the Republicans’ plummeting approval ratings, we remain confident that a deal on the debt ceiling will be reached before a Treasury default.”

Silver Phoenix Twitter                 Silver Phoenix on Facebook