Mind The Gap; European Session Update Pre The New York Open

Aug 27 • Mind The Gap • 1726 Views • Comments Off on Mind The Gap; European Session Update Pre The New York Open

USA debt ceiling may replace tapering as the new market ‘meme’…

debt-ceiling

There was a time, before monetary easing to infinity was introduced in the first months of 2013, when the market meme concerned the fiscal cliff. In December 2012 you couldn’t move your cursor around a financial headline page without stumbling on the words “fiscal cliff”.

Before that we had the meme of the USA debt ceiling when the ‘worried well’ in the financial media sector we’re busily predicting that the USA and global economy would go to hell in a handcart if the debt ceiling wasn’t raised. It was raised as the USA powers that be, in the two government houses, finally realised that if they didn’t raise the national debt then their personal asset wealth would fall significantly, therefore the ceiling was raised. It’s that time again when the debt needs raising and sure enough, once we’ve suffered the political posturing, it will be raised.

The drama starts now and the deadline for increasing the debt ceiling is October, beyond that the USA govt. would stop paying its bills, apparently. Treasury secretary Jack Lew penned the following in his letter to to Republican House speaker John Boehner warning of the potential crisis:

“Congress should act as soon as possible to protect America’s good credit. Operating the government with no borrowing authority, and with only the cash on hand on a given day, would place the United States in an unacceptable position.

It was not possible for us to estimate with any precision when the Treasury would exhaust those funds if no agreement is reached. Indeed, such a scenario could undermine financial markets and result in significant disruptions to our economy. Extending borrowing authority does not increase spending; it simply allows the Treasury to pay for expenditures Congress has previously approved. Failing to raise the debt limit would not make these bills go away, It would, though, have disastrous effects for our nation.”

The USA government actually quietly hit its borrowing limit in May, but the Treasury has been using emergency measures to in effect buy more time, such as ‘stealing’ from government pension schemes etc. The debt ceiling was increased in early August as part of 2011’s Budget Control Act, which also introduced across-the-board “sequester” cuts that began in March this year.

 

Market snapshot 10:00 am UK time

German firms are more upbeat about their future prospects according to the monthly IFO survey, which has beaten market expectations. The IFO business climate index for August was 107.5 points, up from 106.2 in July (and beating forecasts of 107.0). This was not, however, enough of a sentiment game changer to alter the momentum of the DAX, or other European indices. The DAX is currently down 1.46%, the CAC down 1.37%, the UK FTSE down 0.81%. STOXX down 1.52% whilst Turkey’s main index, the ISE 100 is down 2.34% as the Turkish lira reaches record lows versus the dollar and many of its major currency peers. The Turkish lira fell to 2 lira to the dollar mark for the first time as the tensions on its borders will become even more extreme should the USA or NATO begin to place Syria on a war footing.

In the overnight/early morning session many of the major market indices closed in the red. The Nikkei closed down 0.69%, the  Hang Seng closed down 0.59%, whilst the CSI closed up 0.23%. The Nifty index of India closed down 3.34% as the economy and the rupee begins to enter a vicious cycle of failure.

Looking towards the USA open the DJIA equity index future is currently down 0.40% at 14872. The SPX is down 0.44% and the NASDAQ down 0.36% suggesting that, unless there is a major reversal in negative sentiment between now and market open, then the USA markets will open down.

Commodities have mainly risen in the morning session as investors could be looking for safe haven options whilst tensions regarding Syria continue to stalk the markets. ICE WTI oil is up 0.18% at $106.11 per barrel, NYMEX natural is down 0.17% at $3.51 per therm. COMEX gold is up 1.28% at $1410.4 per ounce whilst silver is up 1.12% at $24.32 per ounce.

 

Focus on FX

The Australian dollar lost 0.8 percent to 89.58 U.S. cents late in the Sydney session. It fell 1.1 percent to 87.94 yen. New Zealand’s currency the kiwi slid 0.6 percent to 78.02 U.S. cents after rising 0.6 percent, the biggest one-day gain since Aug 14th. It declined one percent to 76.60 yen. The Aussie dollar slid versus all sixteen of its major counterparts as volatility headed for the highest close in six weeks, hitting the demand for the currency.

The yen rose 0.6 percent to 97.89 per dollar early in the London session after appreciating 0.2 percent yesterday. Japan’s currency gained 0.6 percent to 130.95 per euro following yesterday’s 0.3 percent advance. The 17-nation euro was little changed at $1.3374. The yen strengthened for a second day versus the dollar and euro as a slide in emerging-market currencies’ value boosted demand for safer investments.

The U.S. Dollar Index, which tracks the greenback against its ten major peers, rose 0.1 percent to 1,028.811 after climbing to 1,031.37 on Aug 22nd, the highest since Aug 2nd.

 

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