HONG KONG: Asian markets were down on Wednesday as investors focus on the United States, where lawmakers remain at loggerheads over a budget bill despite having just over a day to raise the debt ceiling and avoid a default.
Earlier optimism that Congress would eventually reach an agreement to fund the government is slowly giving way to despair, while Fitch ratings agency added to jitters by putting Washington’s “AAA” rating on a downgrade warning.
Tokyo slipped 0.16 percent by lunch, Hong Kong shed 0.31 percent, Shanghai lost 1.04 percent, and Seoul and Sydney were flat.
Efforts to end the US debt showdown before Thursday’s deadline collapsed Tuesday, after an extreme Republican rump in the House of Representative refused to back a deal put forward by Speaker John Boehner. Another plan did not even get off the ground.
The proposals would have reopened the government after an October 1 shutdown as well as increase the country’s borrowing limit until February 7.
The House and Senate have little room to fashion an agreement before Thursday, raising alarm bells that the US will default.
Economists have warned that such a scenario will have devastating effects globally, and would lead to a worldwide recession worse than that caused by the 2008 financial crisis.
Aides said that the House failure means Senate Majority Leader Harry Reid and top Republican Sen. Mitch McConnell must now try to find agreement. They had put earlier negotiations on hold after Boehner surprised many by trying to cobble together a House plan.
Despite the shenanigans on Capitol Hill, SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires: “Despite the shortened time horizon and Fitch’s action, hope springs eternal that a ‘disaster scenario’ [default]will be avoided at the last minute.”
But Fitch warned that it would downgrade the US debt rating from its highest level, citing the possibility the Treasury could default on its obligations.
“The US authorities have not raised the federal debt ceiling in a timely manner,” it said.
“Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default,” Fitch added.
Such a move by Fitch would bring its rating in line with Standard and Poor’s, which downgraded the US in 2011, following a similar stand-off.
Wall Street ended in negative territory as the default nears. The Dow slipped 0.87 percent, the S&P 500 fell 0.71 percent, and the Nasdaq lost 0.56 percent.
However, in early Asian trade the dollar remained resilient, buying 98.55 yen, up from 98.16 yen in New York City.
The euro was changing hands at $1.3508 and 133.11 yen, compared with $1.3525 and 132.77 yen.