Europe markets hesitant on US budget impasse

AFP/London

European stock markets were hesitant yesterday as traders reacted to a US budget impasse, offsetting news of improving eurozone business confidence.

US lawmakers remain unable to reach agreement over a budget just days before a deadline kicks in that could see parts of the federal government shut down.

London’s benchmark FTSE 100 index dropped 0.81% to close at 6,512.66 points.

But Frankfurt’s DAX 30 dipped only 0.03% to 8,661.51 points, while the CAC 40 in Paris edged up 0.05% to 4,186.77 points.

Madrid slid 0.47% as the government unveiled yet another austerity budget although it raised its economic forecasts.

Milan fell 1.27% on concerns over the stability of the Italian government as the process of stripping former prime minister Silvio Berlusconi of his seat in the Senate moves forward following his conviction on tax fraud charges.

“The drift in the major equity markets this week largely reflects investor concerns about the lack of consensus in Washington in dealing with the management of US fiscal policy,” said Neil MacKinnon, economist at VTB Capital financial group.

Republicans and Democrats are locked in yet another stand-off over US government funding as a Monday night deadline approaches.

With Democrats refusing to agree to Republican demands that President Barack Obama’s healthcare programme be cut back there are fears that hundreds of thousands of US federal employees will be sent home from Tuesday.

More critical, though, is a looming row over the US debt ceiling, which must be raised before mid-October, when the government runs out of money to pay its bills.

If the spending limit is not hiked, Washington will be unable to service its debt obligations and will in turn default. A similar stand-off in 2011 sent global markets sliding and led to a historic downgrade of the country’s AAA sovereign rating by Standard & Poor’s.

US stocks were mostly down as investors gave more weight to Washington political gridlock than upbeat data on US consumer spending and wages.

The Dow Jones Industrial Average was down 0.39% to 15,268.63 in midday trade.

The broad-based S&P 500 slid 0.39% to 1,692.13, while the tech-rich Nasdaq Composite Index was up 0.01% to 3,787.65.

Uncertainty over the nation’s fiscal situation outweighed data that showed consumer spending rose 0.3% in August, above the 0.2% forecast.

In Europe meanwhile, and after months in the doldrums, eurozone economic confidence hit a two-year high in September, official data showed yesterday, matching other recent signs of improvement.

The strong increase “resulted from markedly improved confidence across all business sectors, whereby improvements in construction and retail trade were particularly pronounced”, the European Commission said.

The Commission, the EU’s executive arm, said its September Economic Sentiment Indicator rose 1.6 points to 96.9 in the 17-nation eurozone and by 2.4 points to 100.4 in the full 28-member European Union.

In response, the euro climbed to $1.3538 from $1.3487 late in New York on Thursday.

The dollar fell to ¥98.31 from ¥99.00.

Sterling jumped to $1.6132 from $1.6039 and to €1.1917 from €1.1893.

Analysts said sterling rose on comments by Bank of England governor Mark Carney hinting that the central bank was not looking to increase the amount of cash stimulus it has pumped into the economy.

Britain’s Royal Mail is meanwhile expected to be valued at up to £3.3bn when it launches on the stock market in October under the group’s controversial part-privatisation, the government announced yesterday.