Financial markets rocked by US shutdown fears and political crisis in Italy

Worries over economic impact of US budget deal hits stocks

Financial markets have been rocked today by fears that the US government was heading for a shutdown and by renewed political instability in Italy.

If Congress cannot agree on a spending bill before the new fiscal year begins on Tuesday, the US government will run out of money to fund its non-essential services, leading to its first shutdown since 1996. Ratings agency Moody's has warned that a shutdown would knock 1.4 per cent off the US' annual gross domestic product.

The White House warned that President Obama would veto any measure that disrupts his plan to provide health coverage to millions of uninsured Americans. The Republicans are targeting the healthcare law popularly known as Obamacare.

Even more alarming is the looming threat of a stand-off over the Federal debt ceiling. Failure to agree to a rise in the government's borrowing authority by mid-October would force the US to default on some payment obligations.

Meanwhile, in Italy, Prime Minister Enrico Letta faces a confidence vote on Wednesday after ministers from Silvio Berlusconi's party stepped down at the weekend.

The five Cabinet ministers from the disgraced mogul’s People of Freedom (PDL) party said on Saturday they would quit the left-right coalition, plunging Italy into another period of political uncertainty, with Berlusconi calling for fresh elections. The ministers have now given mixed signals as to whether they are actually leaving the government.

Though Italy hasn't needed a financial bailout like other countries that use the euro, such as Greece and Portugal, it has high debts that have compelled successive governments to instigate wide-ranging economic reforms. The political uncertainty only adds to concern that the reform program will slip.

A period of stable government is generally seen as vital, now that Italy shows signs of emerging from its worst recession since the Second World War. Deputy economy minister Stefano Fassina said today that bond yields would rise by up to 300 basis points if elections were called.

“If investors had been hoping that common sense would prevail over the weekend, in either Italy or the US for that matter, then they would have ended up sorely disappointed,” said Michael Hewson, senior market analyst at CMC Markets. “Given the protagonists involved in events either side of the Atlantic any other outcome, would probably have been wishful thinking and so it has proved.”

The FTSE 100 was down nearly 1% and European exchanges falling slightly.

Germany's DAX fell 1.1 per cent at 8,567. The CAC-40 in France was 1.4 per cent lower at 4,129. 

Unsurprisingly, Milan's stock exchange was faring worst, trading down 1.9 per cent at 17,310. And in another sign of investor unease, the yield on Italy's benchmark 10-year government bond was up 0.08 percentage points at 4.50 per cent. 

The mood was downbeat earlier in Asia as well. Japan's Nikkei 225 stock average, the region's heavyweight, led the way down, closing 2.1 lower at 14,455.80. Among others, Hong's Hang Seng index was down 1.5 per cent to 22,859.86 while South Korea's Kospi was trading 0.7 per cent lower at 1,074. 

Additional reporting AP

Start your day with The Independent, sign up for daily news emails
Sport
football
News
Hillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
Sport
wimbledonScot will face Ivo Karlovic next
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Sales Administrator - Spanish Speaking

£17000 - £21000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - German Speaking

£17000 - £23000 per annum: Recruitment Genius: This is a fantastic opportunity...

Recruitment Genius: Sales Administrator - Japanese Speaking

£17000 - £23000 per annum: Recruitment Genius: If you are fluent in Japanese a...

Recruitment Genius: Graphic Designer - Immediate Start

£16000 - £25000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test