Markets wobble in midst of US budget standoff

AP and AFP

LONDON/HONG KONG–Financial markets remained fixated on developments in Washington as the partial shutdown of the U.S. government entered its third day and showed few signs of being resolved soon.

The mood remained cautious — any buying following Wednesday’s broad-based selling in stock markets was capped by fears that the U.S. could be heading for an even bigger economic shock. American lawmakers have to agree an increase in the debt ceiling by Oct. 17 or the world’s largest economy may be in default of its debts.

Congress must periodically raise the limit on government borrowing, but the once-routine matter has become the subject of bitter fights between Republicans and Democrats.

As well as undermining confidence in the ability of the U.S. to pay back what it owes, a U.S. default could send shockwaves round the world economy, threatening the patchy economic recovery.

On Wednesday, President Barack Obama met with lawmakers in Congress but little of substance appeared to have been achieved in the dispute that has idled hundreds of thousands of workers and curtailed services nationwide.

“This failure in bipartisan politics could have wider implications than merely shutting down the U.S. government,” said Alex Conroy, a sales trader at Spreadex. “If both sides continue to play chicken with each other and fail to agree before the debt ceiling deadline, the government would only have cash left to pay bills and the chance of default goes from unthinkable to near certainty.”

In Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 6,448 while Germany’s DAX fell 0.1 percent to 8,623. The CAC-40 in France was 0.4 percent lower at 4,143.

Wall Street was poised for a lower opening, with Dow futures and the broader S&P 500 futures down 0.3 percent.

The focus in markets will likely remain on developments in Washington over the day although a run of economic data, such as the non-manufacturing survey from the Institute for Supply Management will provide some distraction. Weekly jobless claims are also expected despite the partial government shutdown. Friday’s key data release — September’s nonfarm payrolls report — is not expected.

Asian shares mostly rose Thursday despite the continuing budget gridlock in Washington that has shut down the U.S. government as President Barack Obama issued a blunt warning to Wall Street over the crisis. Stronger-than-expected Chinese non-manufacturing data provided some comfort as investors appeared to brush off a breakdown in talks between Obama and Republican and Democratic leaders on the spending freeze, which threatens to trigger a debt default if it is not resolved within two weeks. Tokyo ended flat, edging down 13.24 points to 14,157.25, although a weaker yen pared earlier losses, while Sydney closed 0.37 percent, or 19.3 points, higher at 5,234.9. Hong Kong added 1.00 percent, or 229.92 points, to 23,214.40, with a rise in Chinese service sector activity adding to recent data indicating the world’s second largest economy is on the mend. Shanghai and Seoul were closed for public holidays. Gold cost US$1,305.52 at 1054 GMT compared with US$1,292.80 on Wednesday.