Now the dust has begun to settle with regards to the debt ceiling temporary solution, the overall reaction appears to be one of indifference. In many respects that’s a good result as we can now begin to focus more on other high impact news events and policy decisions. Normal service will be resumed, if only until the new year when, as we’ve stated in previous articles, the theatrical political farce will then happen all over again.
And how did USA markets react to the news? The SPX 500, an index of the top 500 companies in the USA, blasted through R1 to close at a new record high. The momentum was assisted by the belief that the monetary easing taper will be further delayed, given that the temporary government shutdown will inevitably hit certain high impact sentiment and production indices.
The rise in the SPX to take out the previous recorded highs, reversed the early performance of the main USA indices. We can’t be absolutely sure but the Chinese rating agency downgrade and Goldman Sachs figures not meeting expectations, a net 2% fall in annual profits, could have been responsible for the early drop of circa 0.7% on the DJIA. However, by the end of the trading session the DJIA was flat with SPX and NASDAQ up sharply. The commentary concerning the Chinese downgrade is worth highlighting given that it shines a light into how certain Chinese bodies regard the recent mess the USA government and economy found itself in.
Dagong Downgrades the U.S. Sovereign Credit Ratings to A- Dagong Global Credit Rating Co., Ltd.
[quote]The partial U.S. federal government shutdown apparently highlights the deterioration of the government’s solvency, pushing the sovereign debts into a crisis status.[/quote]
[quote]The U.S. federal government announced its shutdown on Oct. 1, 2013, a radical event that reflects the liquidity shortage aroused by depleting stock of debts without the increase of new debts, directly resulting in the federal government lack of the funds for its normal function. The partial U.S. government shutdown is an inevitable outcome of its long-term failure to pay its excessive debts.[/quote]
[quote]As the issue of paying sovereign debts falls into a tool that the parties make use of to realize their own interests, the political environment is unfavorable for eliminating the risk of its sovereign debt default in the long term.[/quote]
USA unemployment claims rise above expectations
We’re still in a bit of no man’s land territory regarding the USA weekly unemployment claims as the department of labour has to work through the gaps from California and Nevada, but notwithstanding the missing data the new weekly claimant count was poor and outside of the predictions made by the economists polled at Bloomberg.
In the week ending October 12, the advance figure for seasonally adjusted initial claims was 358,000, a decrease of 15,000 from the previous week’s revised figure of 373,000. The 4-week moving average was 336,500, an increase of 11,750 from the previous week’s revised average of 324,750. The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending October 5th, unchanged from the prior week’s unrevised rate.
Philly Fed report paints optimistic picture
The federal bank of Philadelphia published its latest report on Thursday and despite the index falling significantly the figure came in ahead of expectations given that economists polled had believed that the partial shutdown would create a significant fall.
[quote]Manufacturing growth in the region continued in October, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth. The survey’s indicators of future activity suggest continued optimism about growth over the next six months. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged down from 22.3 in September to 19.8 this month.[/quote]
Market overview
The DJIA index closed flat at 15,371, the SPX closed up 0.67%, NASDAQ up 0.62%. European bourses experienced mixed fortunes; STOXX down 0.17%, FTSE up 0.07%, CAC down 0.10%, DAX down 0.38%. The Athens exchange closed up the most by 1.23%.
Commodities based in oil fell hard in the two trading sessions, with ICE WTI oil flying very close to the critical psyche level of $100 a barrel, finishing the day down 1.58% at $100.67 per barrel. NYMEX natural closed the day down 0.37% at $3.76 per therm.
COMEX gold rose spectacularly throughout Thursday, up 2.88% at $1319.20 per ounce. Silver on COMEX was up 2.41% at $21.88 per ounce.
Equity index futures, at the time of writing, are suggesting that the USA markets’ optimism will carry over until Friday. The DJIA equity index future is up 0.32%, SPX up 0.85%, NASDAQ up 1.13%. The FTSE is up 0.11%, CAC down 0.06%, DAX down 0.35%.
Forex focus
The dollar fell to an eight month low versus a basket of 10 major currencies on bets that the disruption from the U.S. debt-ceiling impasse will hurt growth and therefore cause the Federal Reserve to postpone tapering its monetary stimulus program.
The USD fell by 1 percent to $1.3675 per euro the biggest intraday drop since Sept. 18th. It touched $1.3682, the weakest level seen since Feb. 1st. The U.S. currency slid by 0.9 percent to 97.91 yen after gaining earlier to 99.01, the strongest since Sept. 27th. The euro rose 0.2 percent to 133.90 yen.
The U.S. Dollar Index slumped by 0.9 percent to 1,002.65 late in New York and reached 1,002.41, the least since Feb. 14th. The UK pound strengthened by as much as 1.4 percent, the biggest intraday gain since Sept. 18th, to $1.6172 before trading at $1.6165, up 1.3 percent.
Bonds
Germany’s benchmark 10-year yield dropped six basis points, or 0.06 percentage point, to 1.87 percent late in London, the biggest decline since Sept. 24. The 2 percent bund maturing in August 2023 advanced 0.57, or 5.70 euros per 1,000-euro face amount, to 101.20. The benchmark 10-year Treasury note yield fell eight basis points, or 0.08 percentage point, to 2.58 mid afternoon in New York.
Fundamental policy decisions and high impact news events that may affect market sentiment on October 18th
Friday is a relatively quiet dat for high impact news events, the most dominant issue of the day is various FOMC members holding court, we could therefore find ourselves straight out of discussion on debt ceiling to taper timing.
From Canada we’ll receive the key inflation figures; core CPI expected at 0.2% and CPI at 0.1%.
