Articles and More!: FTSE LIVE: China warns US "clock is ticking" on raising debt ceiling

Tuesday, October 8, 2013

FTSE LIVE: China warns US "clock is ticking" on raising debt ceiling

PUBLISHED: 02:54 EST, 8 October 2013 | UPDATED: 03:01 EST, 8 October 2013

The FTSE 100 has dipped 8.8 points to 6,428.5 as investors stick to the sidelines while the US budget stand-off continues into a eighth day.

Investors are increasingly worried that Republicans and Democrats won’t reach an agreement on raising the US debt ceiling ahead of the October 17 deadline, triggering a default that would cause havoc on financial markets and damage the economic recovery.

Pressure is mounting on the warring parties to make a deal. China – the second-largest holder of American debt after the US itself – has warned the ‘clock is ticking’. US Treasury Secretary Jack Lew said: ‘Congress is playing with fire’.

US crisis: Treasury secretary Jack Lew, left, has warned

US crisis: Treasury secretary Jack Lew, left, has warned ‘Congress is playing with fire’ over debt ceiling

Christine Lagarde of the IMF said last week it was ‘mission critical’ that the US resolves the crisis.

Renowned billionaire investor Warren Buffett believes there will be a last-minute deal, recently commenting to CNBC: ‘We will go right up to the point of extreme idiocy, but we won’t cross it.’

Adding to the negative sentiment, growth in China’s services industry slowed last month and optimism over the business outlook weakened, signalling that the recovery in the world’s second biggest economy is likely to remain fragile.

Capital Spreads trader Jonathan Sudaria said: ‘With such huge uncertainties in the market at the moment, no one has the confidence or nerve to place any sizable positions.’

‘The bulls are cautious of a prolonged stalemate and the bears are fearful of any surprise deal being done so the only trading of note is by those taking profits after the September run up.’

European stocks drifted lower in thin trading volumes as the US budget impasse kept investors on edge yesterday. The FTSE 100 Index was down by more than 50 points during the session though it later recovered ground to close 16.6 points off at 6437.3.

Investors’ risk aversion has risen sharply in the past few days, with the CBOE Volatility index, or VIX – popularly known as the ‘Fear Index’ because it is a measure of market anxiety – jumping 16 per cent yesterday to its highest level since June. The VIX has surged 48 per cent over the past three weeks.