So far the partial shutdown of the USA government has failed to spook the markets with the majority of the leading European equity indices being up in early trading. However, much will depend on the length of the shutdown if it is to severely impact the markets. Once the USA markets open, accompanied by statements from various officials and president Obama, investors and market analysts will be able to obtain a better view as to the potential severity.
Should the impasse drag on beyond a week then the ‘neutral’ view many analysts and investors are currently maintaining could be affected, particularly if Standard & Poor’s analysis changes and they downgrade the USA’s sovereign rating. The Senate is scheduled to reconvene at 9.30am Eastern Time (2.30pm BST).
An estimated 800,000 federal workers (civil servants) will be forced to stay at home from Tuesday under a stalemate that could drag on for days and disrupt services as varied as national parks and the US space programme. The White House has drawn up a list of essential staff who are legally allowed to carry on working, but President Barack Obama warned that a shutdown would have an immediate affect on the fragile US economy;
[quote]“We do not have a clear indication that Congress will act in time for the president to sign a Continuing Resolution before the end of the day tomorrow, October 1st. Therefore, agencies should now execute plans for an orderly shutdown due to the absence of appropriations. We urge Congress to act quickly to pass a Continuing Resolution to provide a short-term bridge that ensures sufficient time to pass a budget for the remainder of the fiscal year, and to restore the operation of critical public services and programs that will be impacted by a lapse in appropriations.”[/quote]
Obama issued a statement to military employees after signing a Republican-proposed law that exempts active-duty servicemen from the effects of the shutdown, but will not protect civilian workers.
[quote]“I know the days ahead could mean more uncertainty, including possible furloughs.You and your families deserve better than the dysfunction we’re seeing in Congress.”[/quote]
German unemployment rises as UK manufacturing PMI disappoints
There was a surprise unemployment print from Germany published at 9 am GMT (UK time) with the country losing 25,000 jobs versus an expectations that a fall of 5,000 would be published. This print has added to fears that the German economy has (in many ways) peaked and is struggling to add any more capacity to an economy that many view as propping up many of the Eurozone’s weakest members. Italian unemployment upped a tick at 12.2%.
Both Spanish and Italian manufacturing PMI’s have printed lower than expectations this morning, Spain at 50.8 and Italy at 50.7. Europe’s manufacturing PMI came in as predicted at 51.1. Attention turned to the UK PMI, published just after 9:30 am UK time, with expectations for a print of 57.5 adding support to the belief that the UK’s fragile recovery is gaining momentum. The UK print came in at 56.7 disappointing analysts who were expecting a further rise.
Market snapshot at 10:00 am UK time
Despite the partial shutdown of the USA govt European markets have not fallen ‘en masse’. The STOXX index is up 0.38% and the DAX and CAC up 0.46%. This comes after the Nikkei was up 0.20% in the session and the CSI up 0.59%. Presumably investors are not over reacting, believing instead that the shutdown is temporary. Much depends now on how the USA govt. communicates with its electorate and the financial media over the coming days. The equity index future for the DJIA is up 0.32%, the SPX up 0.41% and the NASDAQ equity index future is up 0.49% lending support to the theory that the markets had ‘priced in’ a temporary shut down.
The MSCI Asia Pacific Index of shares rose 0.4 percent after a 1.6 percent drop yesterday, the most since Aug 20th. Australia’s dollar climbed versus all 16 of its major peers after the Reserve Bank refrained from cutting interest rates from 2.5% this morning. The Aussie has appreciated by 4.7 percent versus the greenback during September, the biggest monthly advance since June 2012. The kiwi strengthened 7.4 percent last month, the most seen since May 2009.
Commodities
ICE WTI oil is down in the trading session by 0.28% at $102.04 per barrel, NYMEX natural is down 0.06% per therm. COMEX gold is up 0.57% at $1334.60 with silver on COMEX up 0.77% $21.88 per ounce.
Forex focus
The dollar fell 0.3 percent to $1.6233 versus the pound early in the London session and touched as low as $1.6247, declining for a third day. The U.S. currency fell 0.1 percent to $1.3541 per euro. The yen rallied 0.1 percent to 98.16 per dollar after falling as much as 0.5 percent, it was little changed at 132.92 per euro. The dollar slid to the lowest since Jan 3rd versus the pound after the partial shutdown of the U.S. government began with Congress in dead-lock. Treasury 10-year yields rose 3 basis points to 2.64 percent, as the U.S. government shutdown became official.
