Political fears send markets lower

In mid-morning trading the FTSE 100 is down over 40 points, as political rather than economic news dominates traders' minds.

The FTSE 100 has been dragged lower by politics; not from the Conservative conference taking place but a combination of US and Italian political shenanigans. Italy has never been the most stable of countries when it comes to ruling parties and the latest turn of events instigated by Silvio Berlusconi's lead party is ensuring that this trend continues. Europe is already bracing itself for fresh turmoil following the German election results with the next Greek bailout looming, and the latest developments in Italy have arisen at a delicate time for European investor confidence.

The last 24 hours of trading have seen an upturn in buyers of IG's grey market for Royal Mail, pushing the indicated valuation up to £3.325 billion. If this is any sort of indication of how investors will react, it looks set to be an IPO that could be heavily oversubscribed.

Tate & Lyle looks to be the only FTSE company that is making any effort in holding the index up, but fighting against the banking, retail and mining sectors, which are all weaker, is a battle doomed to failure. The latest tweak to the Conservatives homebuyer scheme has at least helped housebuilders buck the trend, with the likes of Barratt Developments, PersimmonBellway and Taylor Wimpey all comfortably higher.

Not since 1995 has the US public sector had to shut down operations due to the two heavyweight political powers failing to agree on debt ceiling issues, but unless progress is made within the next 24 hours that looks likely to change. Historically, it's the government sovereign debt markets that have suffered rather than equities. Unsurprisingly this has badly affected confidence and all the major US equity markets are looking softer ahead of the open, with the Dow Jones being called to start 97 points lower at 15,161.

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