Stocks Muted After U.S. Government Shutdown

By FeaturesDow Jones Newswires

Dollar edges lower after government shutdown

-- Euro buoyant on German coalition talks

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-- Treasury yields keep climbing

Global markets showed a muted reaction on Monday as a U.S. federal government shutdown was poised to stretch into a third day.

The Stoxx Europe 600 edged up 0.2% midday after a mixed finish in Asia. Futures pointed to a flat opening for the S&P 500 and a 0.2% dip for the Dow Jones Industrial Average, while the WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, edged down 0.2%.

Lawmakers on Sunday failed to end a federal government shutdown which began after the Senate rejected a one-month spending bill. The Senate is expected to hold a procedural vote at noon EST Monday on a measure that would keep the government funded through Feb. 8, but it isn't clear if it will have enough support to advance.

While the shutdown could sideline significant numbers of federal employees and government contractors and potentially dampen quarterly growth figures, many investors said it appeared unlikely to disturb the robust global economy that has helped power stocks and temper volatility.

"The market is taking a slight pause here," said Larry Hatheway, group chief economist at GAM Holding, "but it's a little hard to see lasting economic impacts or even particularly durable market impacts from previous shutdowns."

In the seven other shutdowns that occurred in the past 35 years, the S&P 500 on average rose in the week leading up to the shutdown and then subsequently slipped four of seven times, with declines averaging 1% over a three-day period, according to Sam Stovall, chief investment strategist at CFRA Research. However, the S&P 500 then took less than two weeks to get back to break-even, he noted.

Others said it was unlikely to become a real source of volatility unless debt ceiling concerns escalate, but that won't happen until around March.

Yields on 10-year Treasurys inched up on Monday to 2.652% from 2.639% on Friday, which was its highest afternoon yield since July 2014. German bund yields rose to 0.514% from 0.506%. Yields move inversely to prices.

That came after Angela Merkel 's bid to form her fourth government cleared what had been billed as its highest hurdle Sunday after the Social Democrats voted in favor of entering formal coalition talks with the German leader's conservative bloc. The euro edged up 0.2% to $1.2242.

In European stocks, the banking sector was among the best performers as government bond yields climbed. Shares of UBS Group lagged behind, however, falling 1.3% after the Swiss bank said charges related to the U.S. corporate tax overhaul pushed it into a fourth-quarter loss.

Shares of Sanofi fell 3.4% after the French drugmaker said it would buy hemophilia drugmaker Bioverativ Inc. for more than $11.5 billion. The Wall Street Journal reported Sunday the deal would value the former Biogen unit at $105 a share, representing a premium of about 63% to where Bioverativ closed trading Friday.

U.K. bookmakers' shares fell on reports that the U.K. government is leaning toward a change in the threshold for betting terminals. Shares in Ladbrokes Coral were off 6.3% while William Hill fell 11%.

U.S. corporate earnings reports continue this week with 79 S&P 500 companies reporting, according to FactSet, and will be closely watched by investors, particularly the commentary from chief executives following the tax overhaul.

"I really want to know what they're going to do with this extra cash: buyback stock, increase dividends, make acquisitions, pay out one-time bonuses?" said Sandy Villere III, portfolio manager at Villere & Co. "We really need to know if companies are going to hoard the money to themselves and shareholders or put it out into the economy," he said.

Earlier, Asian stocks showed little reaction to the partial shutdown of the U.S. federal government. Japan's Nikkei Stock Average was flat while Hong Kong's Hang Seng Index rose 0.4% to another record close.

Shares of some Apple suppliers declined across the region, however, dragging down some tech-heavy indexes.

South Korea's Kospi fell 0.7% amid a 2.2% drop in shares of index heavyweight Samsung Electronics. The company's stock fell against a backdrop of increased caution over demand for rival Apple's most expensive iPhone.

Kenan Machado and

Harriet Torry

contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

January 22, 2018 09:38 ET (14:38 GMT)

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