Home' Trinidad and Tobago Guardian : October 18th 2013 Contents A28
Guardian www.guardian.co.tt Friday, October 18, 2013
LONDON---A day after the US Congress stepped
back from the abyss and avoided a potentially dis-
astrous default, investor relief was checked yesterday
by concerns over the cost of Washington s drawn-
out political battle.
Even though Congress has agreed to raise the $16.7
trillion debt ceiling and end a 16-day partial gov-
ernment shutdown, the relief rally that started on
Wall Street on Wednesday has largely petered out.
The dollar was down sharply and stock markets drift-
ed.Investors around the world, including fund man-
agers holding dollars and Treasurys, have been unim-
pressed by the political squabbling that has threatened
the US since 2011. The question is whether the
brinkmanship will become the new normal.
After all, the deal cobbled together at the eleventh
hour is just a short-term fix. It permits the Treasury
to borrow normally through February 7 and fund the
government through January 15. It would be no sur-
prise to see a repeat of the political standoff in 2014,
leaving the US once again facing the prospect of a
catastrophic debt default.
Of more immediate concern is what effect the
standoff has had on the US economy, which had
been showing signs of improvement, particularly in
the labour market.
"The government remains the biggest wild card
for end of the year growth," said Lindsey Piegza,
chief economist at Sterne Agee, a privately-owned
brokerage in New York. "A dysfunctional government
is further undermining confidence and exacerbating
cautious spending patterns."
The Federal Reserve had said during the summer
it was considering reducing its monetary stimulus.
Any such plans, however, have been put on hold due
to the uncertainty over the government debt and
because no economic indicators have been published
during the shutdown.
In Europe, the FTSE 100 index of leading British
shares closed up 0.1 per cent at 6,576.16 but Ger-
many's DAX fell 0.4 per cent to 8,811.98. The CAC-
40 in France ended 0.1 per cent lower at 4,239.64.
In the US, the Dow Jones industrial average was
down 0.3 per cent at 15,324 but the broader S&P
500 index rose 0.3 per cent to 1,726.
In the longer-term, one fundamental impact of
the US debt crisis could be on the dollar's status as
a reserve currency. Many in the markets think the
fact that US lawmakers took their issues to the wire
has besmirched the country's credibility.
This week, Fitch warned it may strip the US of
its triple A credit rating. On Thursday, Dagong, a
small Chinese rating agency, downgraded the US to
A- from A, arguing that the US government is "still
approaching the verge of default crisis, a situation
that cannot be substantially alleviated in the fore-
China's position is crucial as the country has bought
up around $1.3 trillion worth of US debt during its
rapid economic expansion. Chinese officials have
been voicing their worries over the US fiscal position
and the dominance of the dollar and US Treasurys
in international financial markets.
Martin Hennecke, chief economist at The Henley
Group, an independent financial advisory firm in
Hong Kong, said he would advise clients to stop
He noted the crisis may make some central banks,
such as China's, more "nervous" about holding US.
Treasurys and spur them to move faster into assets
denominated in other currencies. However, he said
they're also caught in a bind because their Treasury
holdings are so big that they would be unable to sell
without collapsing the market.
Concerns about international investors' reaction
appeared to weigh on the dollar. The euro was up
0.8 per cent against the US currency, at $1.328, while
the dollar was 0.9 per cent lower at 97.97 yen.
Earlier, Asian stocks fared better as they responded
to the previous day's broad rallies in the US and
Japan's Nikkei 225 rose 0.8 per cent to 14,586.51
while Seoul's Kospi gained 0.3 per cent to 2,040.61.
Stock indexes in Australia, Taiwan and Southeast
Asia also gained but Hong Kong's rally faded and
the Hang Seng fell 0.6 per cent at 23,094.88. (AP)
US debt deal relief
short-lived in markets
A woman rides past a brokerage displaying Taiwan's stock market up on opening
in Taipei, Taiwan. An 11th hour agreement that averted a US government debt
default boosted Asian stock markets yesterday. AP PHOTO
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