Markets jittery on US government shutdown

LONDON (AP) — Italy’s main stock market was the standout performer Wednesday as the country’s government won a confidence vote. Elsewhere, the mood was far more downbeat as investors fretted over the partial shutdown of the U.S. government.

The political upheavals in Washington D.C. and Rome have been the main points of focus in financial markets this week. While the gridlock in the U.S. capital shows few signs of resolution, developments in Italy point to a crisis averted.

In a surprise move, Silvio Berlusconi announced that his party will vote to support the government of Premier Enrico Letta, a major turnabout that signals he was defeated in his efforts to bring down the government. With Letta’s government surviving, investors breathed a sigh of relief that fresh elections have been averted and that the government can go along with its economic reform program.

Milan’s FTSE MIB rose 0.7 percent to 18,094. Earlier, it had traded as high as 18,340, its highest level since July 2011, before mounting concerns over the U.S. budget gridlock dented sentiment.

Those concerns over the U.S. government’s partial shutdown have dominated trading elsewhere.

The shutdown, which has seen some 800,000 federal employees put on furlough, went into effect after a politically divided Congress failed to approve short-term funding to keep the government functioning past Monday, the end of its fiscal year.

Though most analysts said they expect the budget stalemate to be resolved before the shutdown inflicts damage on the economy, the latest stalemate has raised concerns over whether Congress will be able to increase the country’s debt ceiling later this month. If it doesn’t, the U.S. would face a potential default, a development that could inflict massive damage on the global economy.

“The probability that the government goes right up to the wire on the debt ceiling, thus causing some destabilization in equity markets, is higher than we previously thought,” said Dan Greenhaus, chief global strategist at BTIG. “We had said we were starting to get nervous. If this continues, nervousness will have to give way to fright.”

In Europe, the FTSE 100 index of leading shares was down 0.7 percent at 6.416 while Germany’s DAX fell 0.5 percent to 8.642. The CAC-40 in France was 0.7 percent lower at 4,168.

The European Central Bank is sharing some of the limelight — its president, Mario Draghi, is holding his annual press conference following the widely-expected decision by the governing council to keep policy on hold.

Wall Street was headed for a lower opening, with Dow futures down 0.5 percent and the broader S&P 500 futures 0.7 percent lower. A private payrolls survey from ADP showing 166,000 jobs were created in September had little impact. Though below market expectations for a 180,000 increase, investors remained focused on Washington.

The dollar remained under pressure too, with the euro up 0.4 percent $1.3562 while the dollar fell 0.7 percent to 97.31 yen.

Earlier in Asia, markets were solid following the previous day’s relatively strong showing in U.S. markets. Hong Kong’s Hang Seng rose 0.6 percent to 22,984.48, reopening after a one-day public holiday while South Korea’s Kospi rose marginally to 1,999.47. Markets in mainland China were closed for a public holiday.

However, Japan’s Nikkei 225 index plummeted 2.2 percent to close at 14,170.49 after the government Tuesday announced it would go ahead with a sales tax increase in April. The tax, intended to offset the country’s soaring public debt, will rise from 5 percent to 8 percent.

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