The febrile feelings moving the share markets

New York Stock Exchange traders Investors can be an excitable bunch

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If the equity markets were individuals - could you imagine living with one?

One moment hysterical with excitement that GDP figures have come in higher than expected, miserable the next because retail sales are a disappointment. Constantly fretting over the price of oil and the war in Syria, one second convinced the Federal Reserve is going to "taper", the next obsessed with how many people have finally found work in the US.

And try to tell them their wealth (i.e. the Dow) has more than doubled since that time back in 2008 when they were REALLY depressed and they'll say with a rising note of panic: "Yeah, but in two weeks, JUST TWO WEEKS, America could default on its debt!"

Anthropomorphising markets tends to make you write in capital letters.

Nail biting

This last month has been a nightmare when it comes to market moods.

Dow Jones Industrial Average

Last Updated at 19 Sep 2014, 16:04 ET Dow Jones one month chart
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Top winner and loser

E.I. du Pont de Nemours and Co.

71.25 +
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+2.89

Caterpillar Inc.

102.51 -
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-1.44

The prevailing one has been one of nail biting worry, even though the Dow ended September 3% higher than where it started the month, it's been up close to its all-time highs but at the moment is on a downward trajectory.

The reasons to bite nails are many and varied, and started with the fear at the beginning of September that the US might be about to launch a missile strike against Syria.

That was compounded by that old chestnut, the tapering off of the US Federal Reserve's support for the economy - the buying on a monthly basis of some $80bn (£50bn) worth of bonds from the banks.

Markets have been all in a tizz about this for some time now and when mid-month the Fed announced that it would keep on buying bonds, the markets were elated.

Buoyed along by more signs of growth in China, Angela Merkel's success in the elections in Germany and the unexpected thawing of relations between Russia and the US, the markets raced ahead of themselves.

But the nail biting has returned, with a vengeance, this time over the shutdown of US government spending and, two weeks away, the deadline for the raising of the government's debt ceiling.

Without being able to borrow more the US won't be able to pay the interest on its debt, and, to put it bluntly, the global economy teeters on the edge of something really nasty.

Ideological debate

Start Quote

The nation and the global economy would be very seriously affected by a failure to raise the debt ceiling”

End Quote Robert Shapiro Former Clinton adviser

At the moment the impasse is not over cuts in the deficit but over cuts and changes to President Obama's healthcare reforms which are tacked on to the bill.

Stephen Pope, managing partner at Spotlight Ideas, says the debate has become ideological with the Republicans' "wish to implement other changes to the health law which the right wing of the party sense verges on socialism".

How worried should the markets be?

Well, one man who has seen some - although not all - of this before, close up, is Robert Shapiro.

He served as principal economic adviser to Bill Clinton in his 1991-92 presidential campaign and is co-founder and chairman of the advisory firm Sonecon.

He laid out how he hoped the crisis would develop: "The Republican House [of Representatives] leadership and the minority Republican Senate leadership have decided to give the radicals the fight over the continuing resolution [on government spending] so when they are forced to concede to the President they can say to the faction, 'We tried your approach and we lost.'

"We cannot repeat this with the debt limit. After all, the nation's economy will be largely unaffected by a reduction in government services for a couple of days or even a couple of weeks, but the nation and the global economy would be very seriously affected by a failure to raise the debt ceiling."

Italy worries

However, whether you're an optimist or a pessimist until the debt ceiling problem is sorted by the deadline of 17 October, feel free along with the markets to chew your fingernails.

And if that's not enough to worry you there's the small problem of the Italian government falling apart at the seams after Silvio Berlusconi removed five of his People of Freedom Party ministers from the coalition government.

Some sort of deal looks likely to be done, but without a united government to steer through its reform programme, and the rating agencies threatening a downgrade of its creditworthiness as an international borrower, the falls in the equity markets there may only be the beginning.

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