City Watch: Political uncertainties have unsettled the markets, says Brian Tora

Brian Tora of J M Finn & Co

Brian Tora of J M Finn & Co - Credit: Archant

Markets started the week in a sombre mood, with sentiment weighed down by problems on both sides of the Atlantic.

In the US the prospect of a total government shutdown was looking very real as neither side of the political spectrum appeared prepared to compromise. The issue is the debt ceiling which, when reached, requires a continuation vote in Congress, or else bills simply do not get paid ? and that includes government employees pay.

The deadline was last night, so perhaps we know by now just how serious the situation is. The issues centre on Republican demands that President Obama delays introducing the Affordable Care Act for a year and makes changes to health law, measures that Democrats fiercely oppose. But no agreement could mean 800,000 government workers being laid off and the first shutdown for 17 years.

Meanwhile, in Italy the coalition government faces collapse, with Berlusconi having withdrawn the five ministers his party provided, though the ministers themselves are sending out mixed signals regarding their future. A confidence vote is due tomorrow and a further general election remains a possibility. All very unsettling for markets.

Tomorrow looks like being a busy day. The European Central Bank will be pronouncing on interest rates, though no change is expected, while supermarket giants Tesco and Sainsbury will be publishing half year results. Today, Wolseley, the plumbers’ merchant which is very big in America, will also be revealing its results for the last financial year. In a week where macro news is dominating, these companies’ reports could provide a welcome diversion.


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But all eyes are likely to remain focussed on Washington. Breaching the debt ceiling is not itself such a big issue, but failing to reach agreement on how best to handle the situation creates a level of uncertainty that is truly unsettling for investors. Asian markets took the lack of progress badly as the week began. A resolution will be needed if markets are to regain their composure.

: : Brian Tora is an associate with investment managers JM Finn & Co.

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