Market update: US rating put on negative watch on default fears – 16.10.2013

Source: Henderson Global Investors

US stocks fell yesterday (S&P 500 -0.7%, Dow Jones -0.9%, Nasdaq -0.6%) as investors were disappointed by news that a resolution to the political wrangling over the US government shutdown and debt ceiling talks had still not been found. This disappointment was also reflected in US government short-term funding costs, with yields on Treasury bills rising again. Additionally, the Empire State Manufacturing Index, which gauges economic activity in NY state fell from 6.3 to 1.5 in October, far below the consensus forecast for a rise to 7.0.

Meanwhile, credit rating agency Fitch placed the US’ sovereign AAA rating on Rating Watch Negative, citing that political brinkmanship and the government’s reduced financing flexibility may raise the risk of the US defaulting on its debt obligations. In earnings news, Citigroup reported lower-than-expected quarterly earnings owing to lower fixed income and US mortgage revenues.

Elsewhere, Asian equity markets weakened with the Hang Seng and the Shanghai Composite down -0.4% and -1.3% respectively.

In Europe, the FTSE 100 and the FTSE Eurofirst 300 Indices both fell 0.4%. Shares in IMI, a maker of valves used in the energy industry, rose 2.3% after the company revealed that it would pay £620m back to shareholders after selling two non-core units to Berkshire Hathaway for $1.1bn in cash. Shares in Royal Mail dropped 3.2% ahead of the results of a closely watched ballot for strike action at the newly privatised company. The Office for National Statistics reported that the number of unemployed in the UK fell by 18,000 in the June-August period to 2.49 million.