By This Is Money Reporters
PUBLISHED: 02:42 EST, 11 October 2013 | UPDATED: 11:28 EST, 11 October 2013
17.15 (close): The FTSE 100 index at the close was up 56.70 at 6487.19.
15.20: The Dow Jones has opened up 50 points at 15,176 while traders wait for US politicians to settle their differences over the debt ceiling.
In London, the FTSE 100 was 54.5 points higher at 6,485. Royal Mail shares are trading at 437.9p, up from a launch price of 330p.
Louise Cooper of financial consultancy CooperCity said: ‘It looks like there may be a short term deal to raise the debt ceiling this weekend avoiding financial catastrophe for the time being.
US crisis: President Obama and Republican leaders in Congress could be edging towards a deal on raising the debt ceiling to prevent a default
‘A bigger deal is supposedly being negotiated. However this row has been on-going for over two years and so I am sceptical of any grand bargain being done.
‘The longer and more bitter the dispute becomes the more difficult it is for either side to eventually back down. The two sides are deeply entrenched in their positions. Thus the rows over the debt ceiling and government spending, I believe, are likely to continue, possibly for years.
‘That continued uncertainty and potential for automatic spending cuts is likely to have a dampening effect on the US and therefore the global economy. ‘
14.20:
The FTSE 100 is trading 39 points higher at 6,469.5 as investors remain on alert for news from the US about a deal to stave off a debt default.
Wall Street futures are flat following yesterday’s strong session after it emerged that Republicans could cave in to Democrats and pass a short-term increase in the debt ceiling without conditions such as defunding Obamacare.
President Barack Obama’s law to extend healthcare to more Americans has been a major sticking point in the Washington battle over the budget and debt ceiling, as Republicans try to overturn the measure and Democrats accuse them of holding the government to ransom.
The latest developments in the US, which could see the two sides get six more weeks to come to a longer-term agreement, was welcomed by markets after several days of turbulence.
Meanwhile, Royal Mail has gained 33 per cent to 439.9p from its debut price on a bumper first day for the stock and its new investors.
The Government said that 95 per cent of all applicants for the heavily-oversubscribed offer had picked up stock but the price surge reignited claims that ministers had sold off public assets too cheaply.
The risers board was topped by leisure group Whitbread as speculation continued over the potential for a break-up of the Costa coffee and Premier Inn hotels chain. Shares rose sharply yesterday and were up another 3 per cent or 95.5p to 3209.5p today.
Standard Life, which climbed 9.1p to 355.5p, while Lloyds Banking Group added 1p to 75.9p. In a strong session for financial stocks, Barclays rose 3.8p to 278.3p, HSBC lifted 10.8p to 689.1p and Aberdeen Asset Management added 7.7p to 391.1p.
Elsewhere, shares in defence group Chemring slid by more than 20 per cent as it followed the lead of BAE Systems yesterday in highlighting the impact of the US government shutdown on its business.
It warned that this and other factors would cause operating profits to be £8million lower than hoped for in the current financial year, leaving shares 62.5p down at 221.9p.
Stephen Lewis, chief economist at Monument Securities, said regarding a possible US deal: ‘Receding concerns over a meltdown in the money markets spurred confidence in equities, where investors had, in any case, been predisposed to respond to good news regarding the fiscal stand-off, seeing that the consensus all along had been that a 12th-hour settlement would be reached.
‘The financial markets, naturally, have tended to view the whole shutdown/debt ceiling saga as a crisis in US fiscal management, if not more broadly in US government.
‘This is probably not how it looks to the politicians involved in the manoeuvres that alternately aggravate and soothe market opinion. For them, the prize is what it has always been, namely, partisan advantage.
‘Some Republican congressmen, doubtless, feel a rooted aversion to Obamacare but they would probably not have attached a defunding clause to the “continuing resolution”, had they not been aware of opinion polls showing the Affordable Care Act to be unpopular with the American public. They sought to win credit with that public by defeating, or delaying, the Obamacare provisions.
‘The strategy they chose to establish this advantage was ill-conceived, as Republican Party leaders now seem to recognise. It would always have been difficult to shift the blame for a government shutdown, in the eyes of the public, on to President Obama and the Democrats. It became near-impossible after Senator [Ted] Cruz’s obviously destructive filibuster had achieved global notoriety. The damage to the Republicans is reflected in opinion polls showing the lowest degree of public satisfaction with them in the past 20 years.’
He added: ‘All concerned are talking as though any continuing resolution or lifting of the debt ceiling would truly be temporary; there is no presumption it would be the prelude to a permanent settlement.’
11.50:
The Royal Mail float has got off to a strong start, with the shares still up a thumping 33 per cent at 438.9p in late morning trading.
The debut appears to have vindicated City players who claimed the company was undervalued, only to be slapped down by Vince Cable just before the launch – but commentators warn that IPOs tend to be volatile. Read more here.
The FTSE 100 has rallied 44.3 points to 6,474.8 amid optimism that warring US politicians might finally hash out a deal to avert the threat of a debt default.
‘Risk appetite is finally returning to the financial markets, with investors more optimistic over a deal on the debt ceiling now that both sides are finally showing a willingness to seriously negotiate,’ said Craig Erlam of Alpari.
‘While most people have believed all along that lawmakers from both sides would finally start taking these negotiations seriously, I think what we saw in the US and Asia overnight is a collective sigh of relief.
‘Relief that we may not have to wait for an eleventh hour deal on this one, which would create a certain amount of chaos in financial markets, or even worse that the deadline [on October 17] will be hit and no deal will have been struck. The only question now is, how far will they kick the can down the road this time?
‘Unfortunately, it doesn’t look like they’re going to kick it very far. In fact, the House Republicans have proposed an increase in the debt ceiling that would give the US six weeks until its back in exactly the same situation again.
‘It would appear that US lawmakers are not a huge fan of national holidays. Last year they effectively cancelled Christmas in order to avoid going over the fiscal cliff, now it looks as though Thanksgiving will be the next casualty as the extension would push the deadline back to the end of November.’
Monex Capital said: ‘The punch-line may be that “it’s good to talk” and markets are applauding the fact that the two sides in Washington seem to be showing at least a veneer of wanting to make some progress in averting an all-out debt crisis.
‘Yesterday’s big gains on Wall Street translated into a solid end to the week for Asian markets, although it’s interesting to note the dollar giving back some of its recent gains, too.
‘That said, with the fact the first GOP [Republican] offer has been rejected by Obama, the risk of uncertainty is still lingering so there’s going to be plenty of investors out there who simply don’t want to be sitting on too much risk heading into the weekend break.’
Jim Reid of Deutsche Bank said: ‘Following talks with House Republicans at the White House late yesterday, President Obama stopped short of accepting the Republican proposal for a short six-week extension to the debt limit in exchange for wide-ranging negotiations on spending.
‘Importantly though, Obama did not outright reject the Republican plan, and the talks between House Republicans and White House remain constructive according to various accounts. As House Budget Committee Chairman Paul Ryan put it, Obama “didn’t say yes, he didn’t say no”.
‘The President told Republicans during the meeting that he wants any proposal to also include an agreement to reopen government.
‘The exact parameters of the Republican proposal are not clear, but it does appear that negotiations are centred on how far to extend the debt limit and how much funding they would provide the government when it opens, according to Republicans. Significantly, defunding Obamacare [Obama"s signature health law] does not appear to be a condition of this short-term agreement.
‘Meanwhile, the latest opinion polls indicate that Republicans appear to be getting more of the blame for the standoff. An NBC/Wall Street Journal poll released on Thursday found approval of the Republican Party at 24 per cent, which is a record low. Democrats won the approval of 39 per cent of the U.S. public.
‘In addition to that, the two highest-profile leaders of the GOP’s “Defund Obamacare” effort, Ted Cruz and Mike Lee, have also suffered a sharp fall in popularity according to the latest Gallup poll.’
Washington stand-off: Republican Speaker John Boehner leaves his office on Capitol Hill for talks at the White House, as a slew of polls say Americans are blaming his party for the crisis
9.30:
Royal Mail shares have jumped 35 per cent to 444.63p in early trading, creating an immediate windfall for ordinary investors who bought £750-worth of stock, Read more here.
The Government said that 95 per cent of all applicants for the heavily-oversubscribed offer had picked up stock but the price surge reignited claims that ministers had sold off public assets too cheaply.
The FTSE 100 was 24.9 higher at 6,455.4 as US politicians appeared to be nearing a deal on raising the debt ceiling to stave off a potentially disastrous default.
However the situation is fluid and there has been no retreat on the budget stand-off that has closed large parts of the US government.
Risers in London included insurer Standard Life, which climbed 6.6p to 353.1p, while Lloyds Banking Group added 0.6p to 75.5p after it sold its Australian operations to Westpac in a deal worth £900million.
Joe Rundle, head of trading at ETX Capital, said the Royal Mail stock market debut was ‘dazzling’.
‘The jump in the shares above 400p will certainly see the UK government being criticised for selling the company too cheaply, ripping off UK taxpayers but it must be noted that institutional allocations have been scaled back this time, allowing allocation to retail clients.’
He added: ‘Looking to the immediate future for Royal Mail, the threat of industrial action still looms, [and] structural problems such as a lack of adequate capital and unclear growth strategy are likely to weigh on the stock price.
‘Management and MPs will have to continue talking up Royal Mail in the run up to the UK elections next year, with the market now looking out for details on how this company will adapt, expand and deliver rewards to its investors.’
8.40:
The FTSE 100 has opened up 19.7 points at 6,450.2, bolstered by the prospect of US politicians reaching a deal on the country’s debt ceiling.
Investors are also watching the debut of Royal Mail group following a controversial but heavily subscribed floatation – the shares shot up from a starting price of 330p to 446.9p at the open.
In Washington, President Barack Obama and Republican leaders appeared ready to end the deadlock and raise the US debt ceiling after a meeting at the White House. Talks continued into the night and one senior Republican said an agreement could come today, though hurdles remain.
Global equities have lost ground this month after the US government partially shut down due to a stalemate over the country’s budget.
This has led to concerns that no deal will be reached to raise the $ 16.7trillion borrowing limit, which Treasury Secretary Jack Lew said the government will hit no later than October 17.
Optimism over a breakthrough in the US impasse helped lift the Footsie 92.58 points or 1.5 per cent to 6,430.49 yesterday, its biggest one-day percentage gain since July. The index had fallen to its lowest level since July 4 on Wednesday.
Darren Courtney-Cook, head of trading at Central Markets Investment Management, said that even if all the US politicians did was to set a short-term debt-limit extension, the avoidance of a default would be enough to soothe investors’ nerves.
‘Even if they just kick the can down the road again, the fact that there won’t be a default is why the markets would take it so positively. There may be some volatility going up to the wire, but most people expect a year-end rally,’ he said.
Michael Hewson of CMC Markets said of the US developments: ‘The fact that the two sides are talking to each other is progress and as well known jaw-jaw is better than war-war.
‘While averting an imminent default, any agreement would not re-open the government, or repair the damage being done to the US economy, caused by the current shutdown, which makes yesterday’s market rally somewhat irrational, even if it is understandable in the context of the fact that politicians are actually starting to wake up the consequences of their actions, and inching back from the abyss of a potential default.
‘A look at the opinion polls may have also been rather sobering for the Republicans with a majority of Americans blaming them for the log jam, which may explain the slight softening of their positions.
‘As we head into day 11 and the weekend, one thing is certain, there is bound to be a lot more twists and turns in this saga over the next few days.
‘In any case 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.’
Stocks to watch today include:
ROYAL MAIL: Britain sold a majority stake in Royal Mail at 330 pence a share following massive investor interest that values the postal service company, known worldwide for its iconic red postboxes, at £3.3billion.
LLOYDS BANKING GROUP : The bank has sold its Australian operations to Westpac.
WHITBREAD: Shares in the leisure company rose, helped by revived speculation it might soon decide to hive off its Costa Coffee business, according to the Daily Mail market report.
CHEMRING: The military equipment maker warned that it would take an £8million hit to 2013 operating profit from continuing production and quality problems, and that it saw 2014 performance behind this year’s.
ASTRAZENECA: The drugmaker has signed a deal to co-promote Johnson & Johnson’s novel prostate cancer medicine in Japan, giving the company a new drug revenue stream and bolstering its Japanese presence.
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