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US Debt Ceiling Hopes Shore Up Markets

Friday, 11 October 2013 06:57 AM

Indications that a deal to increase the U.S. debt ceiling may be imminent shored up markets once again on Friday.

Stocks have rallied over the past day or so amid signs that the White House and Republicans in Congress were inching toward a deal that would avoid a possible U.S. debt default, though not necessarily an end to the partial shutdown of the government.

With the Oct. 17 deadline to increase the debt ceiling looming, Republican leaders said they would vote to extend the government's borrowing authority for six weeks. A spokesman for President Barack Obama said he would "likely" sign a bill to increase the nation's ability to borrow money.

A failure to increase the debt ceiling raises the prospect of a U.S. debt default that could derail the global economic recovery and prompt turmoil in financial markets. For most of the past couple of weeks, investors have been wary, rather than panicky, about that possibility, so the prospect of a resolution, however short-term, has prompted a relief rally that's carried on into Friday's trading.

"The 'constructive' talks between the Republicans and Democrats yesterday and the indications that these will be continued today has strengthened hopes that the U.S. debt ceiling could be raised before the start of next week; even though there is currently risk that this solution could prove to be temporary," said Jane Foley, an analyst at Rabobank International.

In Europe, the FTSE 100 index of leading British shares was up 0.7 percent at 6,477 while Germany's DAX rose 0.3 percent to 8,715. The CAC-40 in France was 0.1 percent higher at 4,221.

Developments in Washington will remain the focus of attention, especially as monthly retail sales data for September have been postponed because of the government shutdown, which is into its second week. In the currency markets, the euro was up 0.3 percent at $1.3572 while the dollar rose 0.2 percent to 98.33 yen.

Earlier, Asian markets advanced in the slipstream of Thursday's developments. Japan's Nikkei 225 stock average rose 1.5 percent to 14,404.74 and Hong Kong's Hang Seng added 1.2 percent to 23,218.32. Australia's S&P/ASX 200 climbed 1.6 percent to 5,230.90. China's Shanghai Composite Index rose 1.7 percent to 2,228.15.

Even if U.S. politicians agree to some sort of deal, it seems it won't be long before the next deadline arrives. The U.S. budget deadlock could be the dominant theme for the rest of the year.

"It would appear that U.S. lawmakers are not a huge fan of national holidays," said Craig Erlam, market analyst at Alpari. "Last year they effectively canceled Christmas in order to avoid going over the fiscal cliff, now it looks as though Thanksgiving will be the next casualty as the extension would push the deadline back to the end of November."

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Indications that a deal to increase the U.S. debt ceiling may be imminent shored up markets once again on Friday.
Friday, 11 October 2013 06:57 AM
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