Obama Ready for Talks, Fear Index at Highest Level in Three Months

On Wall Street, stock prices sharply fell on Tuesday, while the VIX ‘fear index’ reached its highest level in three months as investors fear the consequences of the political crisis in Washington on the fiscal situation and the U.S. economy.

The Dow Jones dropped 159 points, or 1.07 percent, to 14,776 points, while the S&P 500 slid 1.23 percent to 1,655 points, and the Nasdaq index fell 2 percent to 3,694 points.

It has been exactly a week since U.S. government services have been non-operational, and Republicans and Democrats in Congress have not moved from their deadlock regarding the budget.

Yesterday, President Barack Obama stated that he is ready to negotiate on budgetary issues only if Republicans quickly and unconditionally agree to a deal to reopen government services and raise the debt ceiling.

The deadline for an agreement on raising the debt ceiling is in eight days, and if Republicans and Obama do not reach an agreement by then, the U.S. government will not be able to meet all its financial obligations on October 17, which would severely shake financial markets.

Investor uncertainty is indicated by a further rise in the VIX ‘fear index’ of the Chicago Board Options Exchange by nearly 5 percent.

In the last three weeks, this index has jumped more than 50 percent, reaching its highest level since mid-June, indicating that investors are increasingly hedging their portfolios against a potential further decline in stock prices.

Completely overshadowed by the political struggle in Washington was the start of the earnings season for companies for the third quarter.

The price of Alcoa’s stock rose 1.6 percent after the largest U.S. aluminum producer reported slightly better quarterly results than expected.

European stock prices also fell yesterday. The London FTSE index slid 1.11 percent to 6,365 points, while the Frankfurt DAX weakened 0.42 percent to 8,555 points, and the Paris CAC fell 0.77 percent to 4,133 points.