Market update: Stalemate in US shutdown and debt ceiling debate hurts markets – 09.10.2013

Source: Henderson Global Investors

US stocks declined to a one-month low on Tuesday as the impasse in the budget talks between the White House and the Republicans continued. The S&P 500 closed down 1.2%, the Dow Jones fell 1.1%, and the VIX index (a measure of investor uncertainty) rose 5% to its highest level since 20 June. In bond markets, the yield on 1-month US Treasury bills rose above 0.3%, the highest since October 2008, as investors looked for protection against the possibility of a US default by shunning debt maturing in late October and early November. More positively for the markets, the Wall Street Journal broke the news that Janet Yellen was to be formally nominated as the next head of the US central bank on Wednesday. Yellen will become the first female leader of the central bank in its 100-year history.

Asian markets were mixed overnight. The outperformer was Japan’s Nikkei which rose 1% helped by exporters and on Bank of Japan comments that economic recovery was under way. Chinese shares were mixed. While the Shanghai Composite rose 0.6%, Hong Kong’s Hang Seng fell by a similar amount. The mood is fairly dour in Europe this morning with both the FTSE Eurofirst 300 and FTSE 100 indices down at the time of writing (-0.3% and -0.4% respectively). Shares in Telecom Italia were weaker after Moody’s, the rating agency cut its credit rating. The FTSE 100 company, Vedanta Resources, fell too despite delivering record results in Q2 on reports of a broker downgrade.