US budget battle weighs heavily on world markets

AP and AFP

LONDON/HONG KONG–Stocks took a pounding Monday as the partial shutdown of the U.S. government entered a seventh day and lawmakers appeared to be making little headway in raising the country’s debt ceiling. The U.S. has to raise its debt ceiling by Oct. 17. If it doesn’t, the world’s largest economy faces the possibility of defaulting on its debts, a move that would send shockwaves around the global economy and financial markets. Though most analysts think a deal between Republicans in Congress and the White House to avoid default will be cobbled together in time, investors are fidgety — uncertainty discourages investors from buying into risky assets, such as stocks. On Sunday, U.S. Treasury Secretary Jack Lew warned that Congress was “playing with fire” as Republican House of Representatives Speaker John Boehner ruled out a vote on a straightforward bill to raise the government’s borrowing authority without concessions from U.S. President Barack Obama before the deadline. “As the partial shutdown of the U.S. government enters week two, there is little sign that the fiscal stalemate in Washington is being broken,” said Neil MacKinnon, global macro strategist at VTB Capital. “Investors are on the sidelines until there is greater clarity or a last-minute resolution between the White House and the Republicans ahead of the debt ceiling deadline.” A similar stand-off in 2011 went down to the wire before the debt ceiling was raised, but not before world stock markets tumbled and Standard & Poor’s downgraded Washington’s AAA sovereign rating. However, U.S. investors on Wall Street remain upbeat that Democrats and Republicans will eventually reach an agreement. In Europe, the FTSE 100 index of leading British shares was down 0.9 percent at 6,393, while Germany’s DAX fell 1.1 percent to 8.528. The CAC-40 in France was 1 percent lower at 4,124. Wall Street was poised for further falls at the open with Dow futures and the broader S&P 500 futures down 0.9 percent. The focus of attention in financial markets will likely remain on developments in the U.S. capital. Any comments from leading Republicans, such as Boehner, and President Barack Obama, could potentially be big market-moving events. In Asia, stocks fell on Monday on growing nervousness at the lack of movement to end the US government shutdown, as a deadline approaches for lawmakers to raise the country’s borrowing limit. Tokyo lost 1.22 percent, or 170.99 points, to end at 13,853.32, Sydney fell 0.90 percent, or 46.9 points, to 5,161.1, Seoul shed 0.13 percent, or 2.56 points, to 1,994.42 and Hong Kong was down 0.71 percent, or 164.59 points, to 22,973.95. Shanghai was closed for a public holiday.

Gold cost US$1,313.05 at 1042 GMT compared with US$1,315.81 on Friday.