At least once a year traders appear to suffer from a malaise, they become stuck in a market vacuum and it’s not of their own making. It only seems like yesterday that many of us in the analyst community were fretting with regards to the fiscal cliff in the USA, it’ll be approximately eleven months since that huge market issue was finally resolved at the end of December 2012. Then mid-year we moved seamlessly onto the question of the potential tapering of the monetary easing programme and now we’re wrapped up in another issue which shows no sign of being resolved before the October 17th deadline, the debt ceiling raise. Two of these issues involved political posturing and point scoring, the taper issue is more of a secular responsibility for the Fed.
So with three days to go to D day (default day) how close are we to finding a solution? Well according to the POTUS, (the president of the United States) we’re no closer to a solution despite the incessant rounds of meetings between the opposing factions. We now learn that a meeting between Obama and the leaders in Congress has been postponed. However, there is an opportunity for the can to be kicked and it’s being proposed by Obama’s opponents; US senators are discussing short term funding bill.
The Bill would extend funding up until Jan 15th. Spending would stay at current levels. Any deal is likely to take the time frames out past the Christmas holiday season as they won’t want to be going through the issues over the Christmas period. Both Reid and McConnell, the respective party leaders in Congress, saying they are very optimistic that an agreement will be reached. Reid says that he’s looking for one this week.
Global central banks begin forming contingency plans on how they would keep financial markets working if the U.S. defaults on the world’s benchmark debt.
JPMorgan CEO Jamie Dimon said that his bank has calculated it probably processes about six or seven billion dollars a week in benefits such as social security, food stamps and veterans benefits.
[quote]“We were going to fund it, despite the fact that we weren’t being paid by the government, because those people have to eat. A default, however, would be tougher to prepare for. You don’t know the effect and the ripple effect of that through money market funds, people start drawing down revolvers, people don’t know if collateral is good. We can’t have a debt default.”[/quote]
European Central Bank President Mario Draghi told reporters in Washington.
[quote]“It’s unthinkable that an agreement won’t be found.”[/quote]
Japanese Finance Minister Taro Aso told Bloomberg Television’s Sara Eisen;
[quote]“there’s no other way than for the U.S. government itself and the U.S. Congress to sort it out.”[/quote]
Industrial production up by 1.0% in euro area
In more positive news the print for industrial production in the EA 17 came in better than expectations. In August 2013 compared with July 2013, seasonally adjusted industrial production grew by 1.0% in the euro area (EA17) and by 0.5% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In July industrial production fell by 1.0% and 0.6% respectively. In August 2013 compared with August 2012, industrial production dropped by 2.1% in the euro area and by 1.6% in the EU28. In August 2013 compared with July 2013, production of capital goods grew by 2.4% in the euro area and by 1.4% in the EU28.
Market overview
Due to the Columbus Day bank holiday in the USA and Canada the main equity markets were closed and the FX markets experienced less transaction turnover. European markets mostly experienced a positive day. The STOXX index closed up 0.11%, the UK FTSE up 0.32%, the CAC closed up 0.07%, and the DAX closed down by 0.01%. The Portuguese index closed up the most in the European markets by 0.98%.
Commodities were mainly positive, ICE WTI oil closed the day up 0.22% at $102.24 per barrel, NYMEX natural closed up 1.17% at $3.82 per therm, COMEX gold closed the day up 0.28% at $1271.80 per ounce. Silver on COMEX was flat at the day’s end at $21.27 per ounce.
Forex focus
The dollar was little changed at 98.53 yen late in New York after weakening earlier as much as 0.5 percent to 98.08 yen. It rose 1.9 percent over the previous four days. The dollar fell 0.2 percent to $1.3565 per euro. Japan’s currency declined 0.1 percent to 133.65 per euro after weakening to 133.60 on Oct. 11th, the least since Sept. 26th.
The U.S. Dollar Index, tracking the currency’s performance versus a basket of 10 leading counterparts, slid up to 0.23 percent, the biggest intraday drop since Oct. 2nd, to 1,010.07 before trading at 1,011.21, down 0.12 percent.
New Zealand’s dollar, the kiwi, climbed versus all of its 16 most-traded counterparts after the Real Estate Institute of New Zealand said a home-price index rose 0.8 percent in September from a month earlier to an all-time high. The kiwi gained 0.6 percent to 83.68 U.S. cents and touched 83.81 cents, the highest level since Sept. 24th.
The dollar has declined by 1.3 percent during the past month, according to Bloomberg’s Correlation Weighted Indices, which tracks the 10 most developed-country currencies. The euro has gained 1 percent, and the yen has slipped by 0.3 percent.
Steeling rose 0.3 percent to $1.5999 late in London time after sliding to $1.5914 pence on Oct. 10th, the lowest level since Sept. 18th. Monday’s gain was the biggest since Oct. 7th. The U.K. currency was little changed at 84.86 pence per euro.
The UK pound has appreciated by 2.9 percent during the past three months, the best performer after New Zealand’s dollar amongst the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices amidst signs that U.K. growth is gaining momentum. The euro has strengthened 0.8 percent, whilst the U.S. dollar weakened 3.5 percent.
High impact news events that may affect market sentiment on Tuesday October 15th
The inflation figures for the UK are published on Tuesday which naturally could affect the value of sterling versus its major peers, the anticipation is for the overall CPI figure to come in at 2.6%, with RPI coming in at 3.2%, both figures would be 0.1% below the previous month’s print.
The German ZEW index and the European ZEW index is published, Germany is expected to print a number of 49.2 with the European index at 59.4.
The USA Empire State manufacturing index is published with the expectation of a rise from 5.3 to 8.3. It’s a leading indicator of economic health – businesses react quickly to market conditions, and changes in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment. Derived via a survey of about 200 manufacturers in New York state which asks respondents to rate the relative level of general business conditions.
