Global Markets collapse on US defaulting alarms over debt standstill

European and Asian markets fallen as US representatives remained standstill over a deal to enhance Washington's debt limit that is important to avoid a US default.

 London's FTSE 100 index of leading shares initiated down 32 points - or 0.5pc - at 5902.31, with Germany's DAX and France's CAC both falling 0.7pc.

In Asia Tokyo's Nikkei 225 lost 0.8pc, Hong Kong's Hang Seng slid 0.8pc, Seoul's Kospi fallen 1pc and Australia's ASX fell 1.6pc. China's Shanghai Composite dropped by 3.2pc and the Shenzhen Composite was down 4pc, with Saturday's rail crash also having an impact.

US Treasury Secretary Tim Geithner cautioned yesterday that America hazards a main backlash from financial markets except the sketch of a deal to put off a government default is decided in the next 24 hours.

"The only thing you can be guaranteed of over the coming hours and days is instability as the political posturing continues in the US," said Ben Potter, market strategist for IG Markets, in a report.

Weeks of talks between Democrats and Republicans to elevate the country's $14.3 trillion (£8.8 trillion) debt ceiling and avoid default have until now created nothing, and discussions between President Obama and John Boehner, the top Republican in Congress, fragmented on Friday.

The President now faces a mix up to obtain a deal agreed and voted through by Congress before the August 2 time limit, when the US will face its first ever default. A plunge in global markets appears that there are worries this could not be possible, or nervousness over possible tax climbs or expenditures cuts.

Futures agreements indicate that Wall Street will also slide, with the Dow Jones, the broader S&P 500 and technology rich Nasdaq forecast to open down around 1pc.

The US is facing mounting pressure to reach a declaration, as the collision of a US default would be felt throughout the world. Business secretary Vince Cable told the BBC's Andrew Marr on Sunday that it could have effects for the UK.

"The insincerity of the situation at the time, with markets opening tomorrow morning, is that the largest risk to the world financial system comes from a few right-wing nutters in the American Congress before the Eurozone," he said.

Canada to lose out on short-term trade while Japan recovers

TORONTO - Canada will feel the economic impact of the powerful earthquake and huge tsunami that swept away everything in its destructive path in Japan, but the effects should be short lived, experts say.

They suggest Canada stands to lose out on short-term trade as Japan focuses on recovering from the 8.9-magnitude tremor Friday — the most powerful earthquake in the area in nearly 1,200 years.

Japan imported about $9.2 billion of Canadian goods last year, including wheat, lumber, coal and minerals used in manufacturing.

But with several Japanese factories shut down following the disaster, including those of automakers Toyota and Honda, the focus will be on recovery rather than producing cars or other goods like electronics, predicts Tim Richardson.

Richardson, former head of the now-defunct Canada-Japan Trade Council and now a professor at the University of Toronto, said Japanese business executives "will be told in emails from head office to be very concerned about expenditures."

"The Japanese companies will not be producing their manufactured products that require the constant imports," he said.

The fallout from the 8.9-magnitude quake and the seven-metre-tall wave that swept over parts of Japan, will also likely affect Canadian banks, software and telecommunications companies that work with the exporters, he said.

But Richardson said Canada has a good reputation in the lumber and construction industries and exports will bounce back as Japan rebuilds.

Sherry Cooper, chief economist at BMO Financial Group, said the disaster an ocean away might draw more foreign investment into Canada, reducing the impact of the lower trade figures.

"Canada will continue to be seen as a safe haven. We are truly an oasis of calm in a world that is battered by both natural disasters and financial disasters. On a relative basis we continue to be performing very well," she said.

She added that Japan buys a fair amount of Canadian products, but the number is small compared to the U.S., where Canada sells 80 per cent of its exports.

"It's certainly meaningful but it's not going to push our economy into recession," she said, adding that the Japanese disaster in addition to the political turmoil in the Middle East, and rising food and oil prices will ultimately hit Canadian wallets.

"But as we see these developments continue...we can't help but be impacted. Consumers are feeling the pinch."

Both Cooper and Richardson cautioned that the extent of the economic impact in Canada won't be clear for days because the quake happened on a Friday evening and it is not yet clear how much damage has been sustained by Japanese infrastructure.

The northern city of Sendai, which was close to the epicentre of the earthquake, is a major transportation hub for the country.

Source;
http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b6218378&page=2