Political fears drive down markets

Markets fell this morning due to concerns that the US government may face shutdown at midnight tonight.

If no budget deal is reached between the Republican party-led US Congress and president Obama and the White House, the US government effectively runs out of funds at midnight and all non-essential staff will be placed on unpaid leave and agencies shut down.

The shutdown will go on as long as the government cannot agree on a budget and markets have been hit by fears for the economic damage that an extended could cause.

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The major US and Asian indices all headed lower overnight on the shutdown fears, while the FTSE 100 index opened up this morning down 1 per cent, though it has slightly recovered.

European indices have been hit even harder due to the political instability in Italy, where former prime minister Silvio Berlusconi ordered his party members to withdraw from current prime minister Enrico Letta’s coalition government.

The Italian FTSE MIB index is down by more than 2 per cent this morning, while its government bond yields have risen, closing in on 5 per cent, driving up the cost of Italy’s borrowing.