Markets perk up on debt ceiling compromise hopes

AP and AFP

LONDON/HONG KONG–Financial markets were decidedly perkier Thursday as U.S. President Barack Obama prepared to meet with top Republican leaders in an effort to bring an end to the budget impasse that has gripped Washington over the past few weeks. With the partial shutdown of the U.S. government entering a tenth day and a deadline to raise the debt ceiling just a week away, investors across financial markets are focused on developments in the U.S. capital. The biggest worry has been the debt ceiling: If it’s not raised, the U.S. could default on its debts. One option reportedly being considered to break the standoff has been a short-term increase in the debt ceiling. Obama is due to meet 18 Republicans later to discuss how to resolve the crisis. “There has been some talk of a short term debt cap bill with neither side ruling this option out in order to buy more time to come to a more permanent agreement,” said Michael Hewson, senior market analyst at CMC Markets. Though a short-term deal is not the ideal solution for investors, it at least would get rid of some of the uncertainty that has hobbled markets over the past few sessions. “The signs emanating from Washington are slightly more positive for equity sentiment,” said Hiroichi Nishi of SMBC Nikko Securities. “Talk of a short-term increase in the debt limit to allow time for broader budget negotiations is seen as a first step to ending the deadlock,” Nishi said. “But with only a week to go now (until the Oct. 17 default), there isn’t a great deal of time.” In Europe, the FTSE 100 index of leading British shares was up 1.1 percent at 6,406 while Germany’s DAX rose 1.4 percent to 8,634. The CAC-40 in France was 1.5 percent higher at 4,191. Wall Street was poised for a solid opening too, with Dow futures up 0.8 percent and the broader S&P 500 futures 0.9 percent higher at 1,664. With the partial shutdown of the U.S. government meaning that many economic releases have been postponed, investors have little to trade on later apart from the machinations in Washington. The minutes to the last Fed policy meeting, published Wednesday, indicated that the monetary stimulus will not be reduced until there is clearer evidence of a further improvement in the U.S. economic outlook. The increased likelihood that so-called tapering of the stimulus will be delayed until next year has provided stocks a further boost. One of the reasons why stocks have risen over the past few years has been the Fed’s stimulus. Asian markets were mixed on Thursday as traders nervously awaited signs of progress in solving a budget stand-off in Washington that threatens to plunge the U.S. into default. Tokyo ended up 1.12 percent, or 156.87 points, at 14,194.71 thanks to the weaker yen, but Sydney dropped 0.11 percent, or 5.9 points, to 5,147.1 and Seoul was flat, edging down 1.36 points to close at 2,001.40.

Hong Kong fell 0.36 percent, or 82.67 points, to finish at 22,951.30, while Shanghai lost 0.94 percent, or 20.84 points, to 2,190.93. Taipei was closed for a public holiday. Gold cost US$1,301.79 at 1101 GMT compared with US$1,311.10 on Wednesday.