Will talk of tapering be replaced by the new conversation regarding the USA debt ceiling?

Sep 13 • Morning Roll Call • 2983 Views • Comments Off on Will talk of tapering be replaced by the new conversation regarding the USA debt ceiling?

Friday is the infamous anniversary of the introduction of open ended quantitative easing, the monetary easing experiment that was intended to stimulate the USA economy from the bottom up by way of $85 billion of monetary stimulus each month. The failure to stimulate the economy has been of epic proportions, growth in the USA has fallen to an annual rate of 2.5%, when before the stimulus growth was at 4.8%.

USA debt ceiling

The US government will reach its debt limit by mid-October unless Congress acts quickly, Treasury Secretary Jack Lew has warned. The debt ceiling was last raised in January. The government can no longer borrow once it’s reached. Mr Lew said that the govt. will be unable to meet obligations such as; pensions, military salaries and Medicare payments. The country’s borrowing limit is currently capped at $16.7tn.

Mr Lew said in a letter to House Speaker John Boehner and other lawmakers.

“Extraordinary measures are projected to be exhausted in the middle of October. At that point, the US will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day. The cash balance at that time is forecast to be about $50bn, which would be insufficient to cover net expenditures for an extended period. Operating the government with no borrowing authority, and with only the cash on had on a given day, would place the United States in an unacceptable position.”

G7, a mid term report card

Another upcoming anniversary is that of the Lehman brothers collapse. Many publications are focusing on this anniversary to ask how effectively all the extra debt and liquidity since the crisis has improved markets around the world? A neat breakdown suggests the following; the G7 has added approx. $18tn of consolidated debt to a record $140 trillion, relative to only $1tn of nominal GDP activity and nearly $5tn of G7 central bank balance sheet expansion courtesy of the; BOJ, BOE, FED and ECB.

In simple terms it’s taken $18 dollars of debt (of which 28% was provided by central banks) in order to generate $1 of growth. Moreover, G7 debt is now running at 440% of combined GDP. Welcome to the new normal…

Market overview

The DJIA closed down 0.17% at the critical psyche level of 15,300. The SPX closed down 0.34% and the NASDAQ closed down 0.24%. European markets experienced mixed fortunes; the European STOXX index closed down 0.05%, the FTSE closed up 0.01%, the CAC down 0.30% and the DAX down 0.02%. The ASE closed up 0.82% despite the latest desperately poor unemployment figures for Greece, whilst the Istanbul exchange closed up 1.32%.

ICE WTI oil is up 0.87% at $108.60 per barrel. NYMEX natural is flat at $3.64 per therm. COMEX gold is at $1323.80, down 0.51%, with silver down 1.01% at $21.92.

Looking towards the European open and the New York open the DJIA equity index future is flat as is the SPX and NASDAQ. The FTSE equity index future is up 0.22%. CAC down 0.32% and the DAX up 0.07%.

Forex focus

The loonie fell less than 0.1 percent to C$1.0323 per U.S. dollar late in Toronto after touching C$1.0306, the strongest level seen since Aug 16th. One loonie buys 96.87 U.S. cents. Canada’s dollar fell for the first time in five days as U.S. jobless claims reached the lowest level since 2006 last week (based on two stars failing to produce data), boosting bets the Federal Reserve will slow asset purchases at its policy meeting next week. Futures on crude oil, Canada’s largest export, added 1.1 percent to $108.75 per barrel.

Japan’s currency rose 0.4 percent to 99.54 per dollar late in New York after depreciating to 100.61 yesterday, the weakest level since July 22nd. The yen advanced 0.4 percent to 132.38 per euro after strengthening 0.2 percent yesterday. The dollar increased 0.1 percent to $1.3299 per euro. The yen strengthened for a second day versus the dollar after Japan’s machinery orders stagnated in July amidst concern a sales-tax increase will stifle economic growth, boosting demand for the currency as a safe haven.

The Australian dollar slid after data showed the nation’s payrolls unexpectedly fell and unemployment climbed to a four-year high. The currency decreased 0.6 percent to 92.72 U.S. cents after earlier falling 1.1 percent, the biggest drop even since Aug 21st.

Fundamental policy decisions and high impact news events for September 13th

Employment change in Europe is expected to come in down 0.2% on the morning session. Core retail sales and retail sales are predicted to remain static, or to show a modest uptick. Core PPI is predicted to rise by 0.2%. It’s a leading indicator of consumer inflation – when producers charge more for goods and services the higher costs are usually passed on to the consumer.

The Thompson Reuters/University of Michigan Consumer Sentiment is predicted to come in at 82.6 showing a modest increase on the previous month’s figure. There are 2 versions of this data released 14 days apart – Preliminary and Revised. The Preliminary release today is the earlier and thus tends to have the most impact.