UK markets declined on Tuesday for the third straight day as the first partial government shutdown in Washington in 17 years prompted a reduction in risk appetite.
The benchmark FTSE 100 index in London was extending losses after closing at a one-month low the day before of 6,562.22, its worst level since August 30th, when it ended the session at 6,412.93.
The Senate last night voted down a House of Representatives-passed bill that had called for a one-year delay in President Barack Obama's flagship 'Affordable Care Act', something that the Democrats said they would have never agreed to.
As the start of the new fiscal year begins in the States some 800,000 federal employees will be placed on unpaid leave and sent home as the US government is forced to shut down non-essential agencies. The last time there was a government shutdown was back in the mid-90s.
Economists are now trying to figure out what effect this will have on the US economic outlook after Obama said a shutdown would throw a "wrench" into the recovery and have a "real impact on real people right away". Moody's believes that a three-to-four-week shutdown could shave as much as 1.4 percentage points off of fourth-quarter gross domestic product growth.
Rumours that Friday's all-important US non-farm payrolls report could be released earlier or later than planned due to the shutdown also prompted investors to scale back risk appetite on equity markets this morning. According to some observers that is exactly what happened back in 1995, as a budget impasse prompted the government to send out consumer price index data early.
"Republicans and Democrats must find some common ground and tackle their differences in order to formulate a new budget which will raise the debt ceiling. Though this looks hard found at the moment, the market is betting on a deal to be reached in the coming days," said Joe Rundle, Head of Trading at ETX Capital.
"What's more is that this shutdown means Federal Reserve chairman will be more inclined to hold back from tapering quantitative easing at the October policy meeting," he said.
Euro jobless rate steady; manufacturing PMIs in focus
Stocks this morning were also reacting to a number of economic indicators closer to home. The jobless rate in the Eurozone was flat at 12% in August after a 5,000 fall in the number of unemployed, surprising analysts who had expected a rise back to the record 12.1% registered in May and June.
"Since the labour market tends to react to changes in economic conditions with a bit of a lag, the health of the employment outlook may continue to improve over the coming months," said European Economist Ben May from Capital Economics.
Meanwhile, the Eurozone manufacturing purchasing managers' index (PMI) remained at 51.1 in September as expected, while the rate of activity growth in the Chinese and UK manufacturing sectors slowed down to 51.1 and 56.7, respectively. The US ISM manufacturing survey is due out later this afternoon.
easyJet flying high; Unilever sinks on Q3 slowdown
Budget airline easyJet was a high riser this morning after analysts at Citigroup said they expect full-year profits to be "near the upper-end of previous guidance". The company said in July that pre-tax profit would be between £450m to £480m; Citi's forecast is £474m.
Consumer products group Unilever was a heavy faller after markets reacted to a surprise trading update after the close last night which said that the company witnessed a weakening in the market growth of many emerging countries in the third quarter. The company is now guiding to organic growth of just 3-3.5%, well below the 6% forecast by Nomura.
Other consumer staples stocks including SABMiller, Diageo, Reckitt Benckiser, Coca-Cola HBC and Imperial Tobacco were also lower this morning.
Plumbers merchant Wolseley gained after saying it experienced a year of "solid progress in varied markets" as it saw headline profits more than double in the year to July 31st due to lower impairments and exceptional items. The company also raised its dividend by a tenth and revealed a £300m capital return to shareholders via a special dividend and share consolidation.
Property investment and development business St. Modwen Properties rose after saying it has continued to perform strongly since the half year, buoyed by a strengthening housing market, and it remains confident of hitting full-year targets.
FTSE 100 - Risers
easyJet (EZJ) 1,310.00p +2.50%
William Hill (WMH) 411.90p +2.21%
Aviva (AV.) 405.20p +2.12%
Experian (EXPN) 1,199.00p +1.87%
Travis Perkins (TPK) 1,675.00p +1.52%
Intertek Group (ITRK) 3,354.00p +1.48%
Rolls-Royce Holdings (RR.) 1,127.00p +1.35%
Marks & Spencer Group (MKS) 503.00p +1.29%
Barclays (BARC) 268.70p +1.21%
British Sky Broadcasting Group (BSY) 880.50p +1.21%
FTSE 100 - Fallers
Unilever (ULVR) 2,353.00p -3.57%
SABMiller (SAB) 3,062.00p -2.59%
Reckitt Benckiser Group (RB.) 4,419.00p -2.23%
Fresnillo (FRES) 955.50p -1.80%
Aggreko (AGK) 1,576.00p -1.75%
Diageo (DGE) 1,933.50p -1.60%
Coca-Cola HBC AG (CDI) (CCH) 1,823.00p -1.46%
RSA Insurance Group (RSA) 119.50p -1.16%
Imperial Tobacco Group (IMT) 2,264.00p -1.01%
Admiral Group (ADM) 1,221.00p -0.97%
FTSE 250 - Risers
ITE Group (ITE) 286.20p +5.30%
Berkeley Group Holdings (The) (BKG) 2,145.00p +3.52%
Enterprise Inns (ETI) 149.50p +3.46%
Regus (RGU) 188.10p +3.35%
Xaar (XAR) 823.00p +3.13%
Oxford Instruments (OXIG) 1,288.00p +2.22%
Pace (PIC) 259.40p +2.17%
TalkTalk Telecom Group (TALK) 246.20p +1.90%
BH Global Ltd. USD Shares (BHGU) 11.85 +1.89%
Hochschild Mining (HOC) 184.50p +1.82%
FTSE 250 - Fallers
Evraz (EVR) 123.40p -3.59%
F&C Asset Management (FCAM) 96.40p -1.83%
Playtech (PTEC) 723.00p -1.77%
Elementis (ELM) 235.60p -1.71%
Polymetal International (POLY) 643.50p -1.61%
Ocado Group (OCDO) 389.70p -1.59%
Carpetright (CPR) 638.50p -1.54%
Centamin (DI) (CEY) 43.74p -1.53%
Dignity (DTY) 1,428.00p -1.52%
Computacenter (CCC) 526.50p -1.50%