Republican John Boehner, Speaker of the United States House
of Representatives, is demanding Government spending cuts
in exchange for raising the US Government's debt ceiling
limit. Photo by Reuters.
Major global stock exchanges continued to decline in the
face of the United States' debt-ceiling stalemate, as its
Government enters its second week of partial shutdown.
Craigs Investment Partners broker Peter McIntyre said United
States stocks declined, with the S&P 500 index closing at
a four-week low, as the stalemate persisted on preventing a
US Government default.
''The US Government shutdown has entered its second week with
little hope for a near-term resolution,'' Mr McIntyre said.
President Barack Obama has offered to consider bargaining
fiscal terms, after politicians raise the debt ceiling next
week, while Republican John Boehner, who is Speaker of the
United States House of Representatives, has said a debt hike
cannot be approved without including fiscal measures.
Forsyth Barr broker Andrew Rooney had a ''high degree of
confidence'' that the debt ceiling crisis, as with previous
crises, would not result in the US defaulting on its debts.
''Even in a worst-case scenario where the Government remains
closed until the October 17 debt ceiling deadline, we'd
expect the president to ensure debts are paid, even if this
requires emergency powers and a later case in the Supreme
Court,'' Mr Rooney said.
CMC Markets Stockbroking business development manager Tracey
Warren said the showdown had dominated markets lately, with
all talk of the United States Federal Reserve's tapering
being on the back burner for now.
''Investors are becoming increasingly anxious as they
anticipate an 11th-hour showdown when the debt ceiling
deadline rolls around next week,'' she said.
Mr Rooney said the length of the Government shutdown would be
''crucial'' for the economic and stock market impacts.
A longer shutdown increases economic uncertainty, both due to
the direct impact of lower Government spending, and through
the indirect impact on consumer and business confidence.
Most critically, a long-term shutdown would also raise
investor concerns over the possibility of a technical default
if the US breaches its debt ceiling.
Mr McIntyre said there were at present two schools of
thought: that a compromise would be reached in time, and that
while the debt ceiling limit was formally set for next
Thursday, there was a further two-week period to reach
Markets had also considered that while the US Federal Reserve
was considering tapering off its monthly $US85 billion
($NZ102.3 billion) of funding for financial stimulus, the
impasse was likely to see the tapering scenario pushed out
Mr McIntyre said the longer the US impasse went on, the more
likely the Reserve Bank of New Zealand would keep the
interest-driving official cash rate at its record 2.5% low,
and possibly hold for longer against forecasts of upward
movement early next year.
He said Wall Street's drop reflected a ''moderate reaction'',
with benchmark indexes down about 1%, while European stock
markets pared back the worst of their losses during trading,
but still ended lower.
On the New York Mercantile Exchange, for every share rising,
nearly four declined. Following an almost 152-point drop, the
Dow Jones Industrial Average shed 136.34 points to 14,936.24,
while the S&P 500 index fell 14.38 points. The Nasdaq
Composite shed 1%, to 3770.38.