European Markets Trade Lower on US Default Fears

European markets followed their Asian peers and opened lower on 7 October, amid concerns that the political deadlock in the US could continue, potentially hampering efforts to raise the US government's borrowing limit.

The Stoxx Europe 600 index opened 0.2% lower to 309.19.

Britain's FTSE 100 opened 0.3% lower.

France's CAC 40 opened 0.5% lower.

Germany's DAX 30 opened 0.7% lower.

Italy's FTSE MIB was trading 0.18% lower.

Spain's IBEX 35 was trading 0.82% lower.

The US shutdown will enter its second week on 8 October. House Speaker John Boehner has demanded that the government must agree to spending cuts in exchange for raising the debt ceiling.

House speaker John Boehner told ABC that the US was headed towards a credit default.

The world's largest economy will run out of cash to pay its bills on 17 October if the government's borrowing limit is not raised. The country's laws limit its borrowing to $16.7tn (£10.4tn, €12.3tn). Market analysts say that the Treasury would probably not be able to pay its bills if the ceiling is not raised.

Earlier, the Pentagon ordered nearly 350,000 furloughed government employees to report back to work on 7 October, on the basis of a law called the Pay Our Military Act, the AP reported.

Market participants in Europe will be tracking the third estimate of second quarter GDP coming in from the Eurozone's statistics office, alongside the Sentix EU Investor Confidence index.

Air Berlin, Air France KLM and Sweden's SAS will all put out traffic numbers during the day.

"Markets are set to become increasingly nervous over coming days suggesting an increase in risk aversion. Consequently pressure on risk assets is likely unless some sign of rapprochement is seen," Credit Agricole said in a note to clients.

"The VIX 'fear gauge' dropped slightly but none of this will last if [the US] Congress does not get its act together. A deal soon would minimise the economic impact but a protracted impasse would be much more negative for growth. Either way the beginning of [the US] Fed tapering looks to have been pushed into next year," the French bank said.

In Asia and the US

In Asia, the Japanese Nikkei finished 1.22% lower on 7 October. Australia's S&P/ASX closed 0.90% lower while South Korea's Kospi ended 0.13% lower.

Financial markets in China will re-open on 8 October, after the Golden Week holidays.

Earlier in Asia, markets reversed early gains and traded lower, as fears of a US credit default worsened, amid the ongoing US government shutdown.

The "markets remain unimpressed with the lack of progress in breaking the US deadlock," Kenichi Hirano, market adviser at Tachibana Securities told Marketwatch.

Most markets finished the week ended 5 October lower, with India's Sensex leading the pack and the Japanese Nikkei trailing.

On Wall Street, indices ended higher on 4 October despite the ongoing political deadlock in Washington.

The Dow finished 76.10 points higher at 15,072.58, propped up by Boeing and Disney. The S&P 500 closed 11.84 points higher at 1,690.50, while the Nasdaq ended 33.41 points higher at 3,807.75.

For the week ended 5 October, the Dow lost 1.22% and the S&P 500 shed 0.07%. However, the Nasdaq inched up 0.69%.