Risk-off is in full swing overnight after the Congressional impasse deepened over the weekend, and the Italian parliament also was at risk of dissolving, leading to new elections and a potential hung parliament scenario. SPX Futures are down about 0.85%, just above the 50 day moving average at 1671.
- U.S. Senate Convenes at 2 p.m. today – The Senate is expected to reject the House’s latest budget plan that includes delaying Obamacare, and send back a temporary spending measure in response. The House is expected to again add back the Obamacare delay provision. If no further progress is achieved by midnight, then the government will shutdown. In order to avert that, the one possibility that might have enough votes is a spending measure that lasts a few days or a week and gives the parties time to negotiate. But that is likely less than a 50% chance at this point.
- Italian Politics Rears Its Ugly Head – Silvio Berlusconi is attempting to force snap elections, while Prime Minister Enrico Letta has scheduled a confidence vote for Wednesday, Oct. 2, to keep his administration in power and prevent new elections. Italian 10 year bond yields hit a 3 month high early in the session (around 4.64%, but are now back down to 4.5%)
- Asian Indices Mostly Lower, Japan’s Nikkei Down 2% – Japan and the Southeast Asian countries (Philippines, Thailand, Indonesia) were the worst performers, down 2-3%. Hong Kong, India and Australia were down around 1.5%, while China’s domestic market, the Shanghai composite, bucked the trend, and closed up 0.5%, despite a weaker than expected Chinese PMI (50.2 vs. 51.2 initial Flash estimate).
- European Indices All Lower, Led By Italy And Financials – Italy was once again the worst performing major index after its political woes. The Euro Stoxx 50 index is down 1.2%. The crucial support area in the Euro Stoxx 50 index is the May and August high around 2850-2855. Financials are the worst-performing sector.
- Dollar, Treasuries Flat, Oil Lower – Outside of stocks, other asset classes were relatively quiet overnight. No major currency cross moved more than 0.5% and Treasuries were just a touch higher. WTI crude oil’s front month contract hit its lowest level since early July, down 1.25% overnight.