Caution dominates amid US budget gridlock

AP and AFP

LONDON/HONG KONG — The mood in financial markets remained cautious Tuesday as U.S. politicians remained at loggerheads over how to solve the budget crisis that has raised fears of a possible U.S. debt default.

The prevailing view is that Congress and the White House will solve their standoff over the budget that has seen the partial shutdown of the government drag into an eighth day, as well as the potentially more important issue of raising the debt ceiling. Asian stocks managed to eke out gains earlier, while the dollar clambered off recent lows against the yen.

In particular, investors want to see progress on the debt ceiling, which the Treasury Department has said has to be raised by Oct. 17. If it’s not, the world’s largest economy faces the possibility of defaulting on its debts, a move that would send shockwaves through global markets.

“Although most investors believe that a deal will be reached by the deadline, investors are still concerned with the impact their portfolios are likely to take in the meantime,” said Shavaz Dhalla, a financial trader at Spreadex.

In Europe, the FTSE 100 index of leading British shares was down 0.8 percent at 6,384 while Germany’s DAX fell 0.3 percent to 8,564. The CAC-40 in France was 0.6 percent lower at 4,143.

U.S. stock markets were poised for a flat opening following big falls on Monday, when both the Dow Jones industrial average and the broader S&P 500 index fell 0.9 percent.

Asian stocks rose on bargain hunting Tuesday after two days of losses, but dealers remain nervous that the U.S. budget standoff shows no signs of being solved, fueling fears that Washington will suffer a catastrophic default. Tokyo added 0.30 percent, or 41.29 points to 13,894.61 and Seoul was up 0.42 percent, or 8.34 points, at 2,002.76 but Sydney slipped 0.23 percent, or 11.7 points, to 5,149.4. Hong Kong was 0.89 percent higher, adding 204.90 points to 23,178.85 and Shanghai climbed 1.08 percent, or 23.53 points, to 2,198.20 in the first session after a week-long Chinese holiday. However, Katsuhiro Kondo, a broker with Tokai Tokyo Securities, said: “Considering the recent decline, I can say it’s natural to see buying on dips. “But today’s rebound does not guarantee a firm recovery. It’s difficult to buy shares until the U.S. budget impasse finishes.” Global traders are nervously awaiting some movement from lawmakers on Capitol Hill as an Oct. 17 deadline approaches for raising the country’s debt ceiling. Failure to do so will mean the government will be unable to pay its bills or service its debts, triggering a default that analysts have warned could send the world economy back into recession similar to that sustained after the financial crisis. Beijing warned the United States to act quickly to establish the credibility of the dollar, the world’s major reserve currency. Gold cost US$1,320.86 at 1046 GMT compared with US$1,313.05 on Monday.