European markets are trading mostly lower during the early hours of trading by erasing some of their gains which were made yesterday. Investors are focused towards Washington and wondering if the politicians can finally understand the urgency of resolving this political gridlock which has once again called for Deja vu. The rating agency, Fitch, has put the biggest economy of the world, U.S on a negative watch due to illiterate attitude which politicians are using to resolve the debt ceiling and the government shutdown dispute.
Whether the politicians can craft a new ship which can sail through this storm is appearing less likely, as we are approaching towards the final few hours of the debt ceiling deadline and the clock is ticking fast. Given the volatility index which is considered as a good gauge of fear is still not near the explosion level and dollar is still relatively stronger against a major basket of currencies makes me believe that a default by the US government is not imminent.
Investors are certainly not acting as naïve as you may think and they are preparing themselves for the contingency plan which for some is purely staying on the side-line and for others, is to dip their toes in risk averse assets such as gold. The precious metal has bounced strongly back up from its low of $1250 since the Fitch news hit the wire.
However, the politicians have resumed their talks once again and the markets are smoking the hopium (opium) that may be once for all they will be able to agree on this issue and a resolution may finally emerge. If such a situation does take place and the US averts a default with a firm solution in place, this could undoubtedly push the markets higher and we could see a garden-fresh appetite by traders for riskier assets.