30th Sep 2013 10:03
LONDON (Alliance News) - London's main equity markets are trading heavily lower mid-morning Monday, with global investor sentiment remaining poor as the US government heads for a budgetary shut-down.
US politicians appear to be at loggerheads over how to proceed, with the US House of Representatives on Sunday voting to delay many provisions of President Obama's landmark healthcare law for a year and adding it to the funding bill. The Democrat-controlled Senate, which will convene this afternoon, is expected to decisively reject the House bill, leaving little time for Congress to find common ground before Monday's midnight deadline. Unless a compromise can be found, a government shut-down - the first in 17 years - will put hundreds of thousands of federal workers on unpaid leave.
By mid-morning Monday the FTSE 100 is 0.7% lower, at 6,467.00, the FTSE 250 is 0.8% lower at 14,812.20 and the AIM All-Share is 0.9% lower, at 790.00
Gold, the traditional safe haven, has been gaining on the concerns while the dollar has fallen. The yellow metal currently trades at USD1,338.50 per ounce, while the dollar trades at 1.3505 to the euro and 1.6150 to the pound.
With most UK stocks falling amid the US budget concerns, only house builders are showing any notable gains, with the FTSE 350 sector up 0.3%. Persimmon leads the few FTSE 100 gainers, up 2.1%, while on the FTSE 250 the top gainers also are homebuilders. Bellway is up 2.8%, Barratt Developments up 2.3% and Taylor Wimpey up 2.0%.
House builders are gaining on the back of the weekend announcement from David Cameron that the new Help-to-Buy scheme will be brought forward by three months, taking effect as early as next week. The scheme will provide potential buyers with just a 5% deposit with guarantee from the government of another 15% of the value and is expected to boost home sales. The early introduction of the scheme comes as a potential UK housing bubble is being investigated by Bank of England Governor Mark Carney and colleagues at the FPC.
The FPC has been given powers to intervene if signs of a housing boom present themselves, with Carney telling the House of Commons Treasury Committee on September 12 that the FPC's tools could include making conditions for extending mortgages more stringent, increasing the amount of capital banks have to hold relative to lending, and preventing mortgages that go above 100% of a house's value.
UK lending numbers released Monday show net consumer lending for August of GBP1.6 billion, up from GBP1.5 billion in July and in line with expectations. Mortgage lending increased to GBP1 billion in August from GBP0.8 billion in July, with the number of approvals up to 62,226 from 60,914. The reading is slightly higher than expected and now at the highest level since February 2008. The new Help-to-Buy scheme is likely to accelerate the increase in approvals.
Political rhetoric continues to step up over the US budgetary issues, with Former US President Bill Clinton suggesting that Obama should stand his ground. Clinton, whose Democratic administration was the last to experience a partial government shut-down in 1996, said that "there are times when you have to call peoples bluff", in an interview with US television network ABC. Clinton went on to say that Republican tactics to undermine Obamacare are "almost spiteful".
Even if the immediate issues can be solved, a potentially far more serious concern waits around the corner. By mid-October the US is expected to reach its debt ceiling, meaning the government would default of some of its obligations. The last time the US government ran its debt ceiling to its limit in 2011, it resulted in the country losing its AAA credit rating from Standard & Poor's even though the debt ceiling was raised at the last minute.
Still to come Monday, the US Chicago Purchasing Managers Index at 1445 BST, with further updates on US political wrangling continuing to dominate.
By Jon Darby; [email protected]; @jondarby100
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