Markets welcome talk of Washington peace deal

Small improvements as shares improved, but US government shutdown still affecting many firms

Markets took heart from talks to extend
temporarily the US’s $16.7 trillion (£10.45 trillion) debt ceiling as shares
gained ground for the second successive day today.

But more evidence of the damage wrought by the lingering government shutdown in Washington also emerged as Chemring became the latest UK firm to be hit. BAE Systems and G4S have also been affected.

The White House and Republicans are inching towards an extension of the ceiling for a further six weeks from the October 17 deadline, which could trigger a default — but the negotiations do not include reopening the Government, which sent home 800,000 staff more than a week ago.

The potential fallout of the crisis will top the agenda this weekend when finance officials from major nations hold discussions in the G20 forum ahead of meetings of the IMF and the World Bank.

But the hints of compromise in Washington helped the FTSE 100 add 43.07 to 6473.56 following gains overnight as Japan’s Nikkei 225 rose 1.6% and Hong Kong’s Hang Seng advanced 1.3%, although investors still remain wary.

“An agreement to extend the deadline also only serves to shift the debate nearer to the Thanksgiving break, which would obviously mean potentially another six weeks of this political nonsense,” said CMC Markets analyst Michael Hewson.

Investment bank JPMorgan Chase said it had sold all of its exposure to short-term US government debt out of its money market funds, following a similar move by other money market mutual fund managers.

The news comes a day after Fidelity Investments said it no longer holds any government debt due around the time that the US could hit its borrowing limit. JPMorgan’s money market funds no longer hold any US Treasuries that mature or have payments scheduled between October 16 and November 6. The bank believes the probability of a catastrophic default is low but it is taking precautionary measures to protect investors.

The chief executive of coffee giant Starbucks, Howard Schultz, intervened in the row today, circulating petitions to customers across the US urging politicians to reopen the partially closed government and give citizens a “platform with which to voice their frustration and outrage”.

Chemring fell 18%, or 51p, to 233.4p as the FTSE 250 contractor warned of an £8 million profits blow this year from the stronger pound, ongoing problems at its decoy flares factory in Kilgore, Texas, and the American government shutdown delaying orders. Profits will be even lower next year, the firm said.

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