German consumer confidence has hit its highest level since before the financial crisis began. The monthly GfK survey of German consumers found a “clear upward trend”, as Germany’s public appear more willing to spend then ever before. Economic expectations were also up, as the eurozone pulled away from recession. GfK’s index of consumer climate beat expectations by rising to 7.1 for October (the index looks ahead to the next month), the highest value in six years. September’s reading came in at 7.0, revised up from last month’s forecast of 6.9.
[quote]”German consumers are expecting the economy to gain momentum again in the coming months. This is reflected in the increase in economic expectations, which are on a clear upward trend. Germans’ desire to shop also appears to be unbroken.[/quote]
[quote]”In fact, willingness to buy once again improved on the record value of the previous month. However, income expectations declined for the second consecutive time, but continue to be at an extremely high level. Despite the fall in income expectations, consumers are almost euphoric when it comes to their propensity to consume. Now is perceived as a good time to make major purchases.”[/quote]
Trinity of horrors for USA markets
We’ve endured the talks regarding the taper of the USA Fed’s stimulus programme for months. The USA debt celling crisis has now returned to haunt the markets and now we’re hearing the “fiscal cliff” mentioned once again. A trinity of horrors that will make investors feel nauseous with worried expectation.
A U.S. government shutdown, or a failure to raise the debt limit, would slow economic activity, which would have the knock on effect of damaging the USA’s credit quality, according to Moody’s Investors Service. Yields on 10-year Treasuries touched 2.67 percent on Tuesday, the lowest level seen since Aug 13th. Moody’s stated;
[quote]”The consequences for the economy and government revenues would be negative. Financial market and economic consequences would likely be more severe if the debt limit is not raised than under a government shutdown. The perception that the U.S. government could default on debt servicing if the debt limit isn’t raised could roil financial markets and damage business and consumer confidence.”[/quote]
Swiss UBS consumption indicator falls due to a drop in new car registrations
The UBS consumption indicator fell to 1.32 index points in August from 1.41 previously. UBS does not regard this as grounds for diverging from the recently raised forecasts for the Swiss economy, since private consumption is likely to continue growing robustly and to remain the most important pillar of the economy. The Swiss are again more inclined to take domestic vacations. The number of overnight hotel stays by Swiss nationals has risen by 1.3%, or 122,000 overnight stays, to 9.3 million since the start of the year, compared with the same period last year.
French budget is due this afternoon
The French government will try to pull away from the country’s recession this afternoon when it publishes its budget for 2014, at 3pm local time or 2pm BST. It’s expected to include around €15bn of cuts to government spending, and €3bn of tax rises, along with pledges to stimulate growth and reduce unemployment.
Italian consumer sentiment rises
Italy’s consumer confidence index has hit its highest level since June 2011, before the eurozone crisis gathered pace and Silvio Berlusconi’s government was brought down. ITAST reports that Italian consumer confidence rose to 101.1 on its index, up from August’s reading of 98.4. Greater than the economists polled had expected, based on people reporting that economic conditions are better than the previous month.
Market snapshot at 10:00 am UK time
Asian shares slid and the dollar inched higher in the overnight/early morning Asian trading session on Wednesday, due to the concerns over the possible U.S. government shutdown and lingering uncertainty over the U.S. Federal Reserve’s policy outlook. This caused investors to be fearful of taking aggressive market positions.
The MSCI Asia Pacific Index of stocks fell 0.2 percent, adding to the 0.6 percent decline seen on Tuesday. The Standard & Poor’s 500 Index weakened 0.3 percent yesterday in a fourth day of losses.
Asian markets slipped in the overnight/early morning session. The Nikkei closing down 0.34%, the CSI down 0.43% and the Hang Seng down 0.11%. The ASX 200 closed up 0.63%.
Commodities
Commodities are mostly positive,ICE WTI oil up marginally by 0.06% at $103.19 per barrel, NYMEX natural is up 0.83% at $3.52 per therm. COMEX gold is up 0.40% at $1321.50 per ounce, with silver on COMEX up 0.27% at $21.64 per ounce.
Equity index futures
Looking towards the New York open, through the prism of the equity index futures, the DJIA is flat, the SPX is down marginally by 0.09%, with the NASDAQ also flat suggesting that the USA markets will not open with any significant momentum to the upside or downside barring any rogue major breaking high impact news events.
Forex focus
The yen and dollar held gains versus most of their major peers as stocks in Asia and the U.S. dropped due to the concerns over budget talks risking the federal government shutdown, sparking demand for haven currencies.
The U.S. Dollar Index, tracking the greenback versus 10 major currencies, rose 0.1 percent to 1,014.71 early in the London session after climbing 0.2 percent yesterday. The U.S. currency traded at $1.3472 per euro from $1.3474 yesterday when it gained 0.1 percent. The greenback was little changed at 98.68 yen. The euro weakened 0.1 percent to 132.93 yen.
Sterling traded at $1.5989 early in the London session after climbing to $1.6163 on Sept 18th, the highest level seen since Jan 11th. Sterling was at 84.24 pence per euro after appreciating to 83.53 pence on Sept 18th, the strongest level seen since Jan 17th. The pound was little changed overall versus the dollar and euro before a report on Thursday which analysts believe will confirm that the U.K. economy expanded in the second quarter.
Sterling was about 0.8 percent from its strongest level versus the euro since January. The U.K. economy expanded 0.7 percent in the three months through June, the Office for National Statistics will say tomorrow, according to the median estimate of analysts.
Bonds
U.K. 10-year government bond yields dropped the most since Aug. 27th as the Bank of England Deputy Governor Paul Tucker stated that the U.K.’s central bank was in “no rush” to withdraw stimulus.
