It would appear that the USA government is inching towards a shut-down, the ‘saving grace’ is that the leading credit agency, Standard & Poor’s, is signaling that it isn’t concerned enough to downgrade the USA government credit status by another notch. In a research note delivered to the financial industry, S&P lowered the probability of a repeat performance of the downgrade that paralyzed equity and debt markets in 2011. Two years ago the impasse between the Congress and the White House caused S&P to strip the U.S. of its AAA credit rating;
[quote]”In our opinion, the current impasse over the continuing resolution and the debt ceiling creates an atmosphere of uncertainty that could affect confidence, investment, and hiring in the U.S. However, as long as it is short-lived, we do not anticipate the impasse to lead to a change in the sovereign rating. Of course, the length of any shutdown is another important factor.”[/quote]
In an interesting note from the USA Bureau Of Labour statistics they confirmed that Friday’s NFP print would be with-held should the govt. debt ceiling impasse be ‘in play’ on Friday. In many ways it’s an obvious decision, given that technically there may be an extra circa 800K ‘technically’ unemployed, however, the probable reason is that there simply wouldn’t be the staff in the department to cope with the data. It’d be difficult to imagine a situation were those not being paid are willing to go about their normal day to day activities in their workplace.
The NFP payrolls number is released on the first Friday of every month. In January 1996, the release of the December 1995 jobs number was delayed by approx. two weeks due to the government shutdown that lasted from mid-December to early January and a snow blizzard that shut down the capital city for a few days.
Market overview
Considering the potential shutdown of the USA govt. a fall of 0.84% on the DJIA was not as dramatic as many investors and market analysts would have predicted. The SPX closed down 0.60% with the NASDAQ down 0.27%. European markets mainly closed in the red; STOXX index down 0.77%, FTSE down 0.77%, CAC down 1.03%, DAX down 0.77%. The Athens exchange was the worst performer on the day closing down 1.64%.
Commodities
Commodities also fell across the board on Monday, ICE WTI oil down 0.54% at $102.32 per barrel, NYMEX natural down 0.81%, COMEX gold was down 0.83% on the day at $1327.00 per ounce with silver on COMEX down 0.56% at $21.72 per ounce.
Equity index futures
Equity index futures are down on the USA equity markets, the DJIA equity index future is down 0.98 at the time of writing, leaving the index at 15046, very close to the critical 15,000 level. SPX equity index future is down 0.62%. European equity index futures are mainly in the red, STOXX down 0.9%, FTSE down 0.79% and the DAX down 0.87%.
Forex focus
The U.S. Dollar Index, tracking the performance of a basket of the 10 leading global currencies versus the dollar, fell for a second trading-day, declining by 0.1 percent to 1,011.85 late in the New York session, after weakening by as much as 0.2 percent. The yen was little changed at 98.30 per dollar after touching 97.50, the strongest level since Aug 29th. Japan’s currency fell 0.1 percent to 132.93 versus the euro after appreciating to 131.38, the strongest level witnessed since Sept 9th. The euro was little changed at $1.3527.
The New Zealand dollar has gained 7.4 percent versus the USD this month, yen has fallen by 0.1 percent. In the latest quarter, the kiwi led all major gainers with a 7.3 percent rise, while the worst-performing South African rand slipped 1.5 percent. Denmark’s krone is the best-performing currency in 2013 and the rand has plunged 15.5 percent.
Sterling rose by 0.3 percent to $1.6190 at the close in London after rising to $1.6203, the highest level seen since Jan 3rd. Sterling gained 0.2 percent to 83.59 pence per euro after appreciating to 83.40 pence, the strongest level seen since Jan 17th. The pound rose above $1.62 to the highest level in almost nine months after reports showed house prices climbed the most in six years and mortgage approvals increased to 62,000, adding to signs that the UK economy’s fragile recovery is gaining momentum.
Bonds
The yield on the 10-year gilt rose one basis point, or 0.01 percentage point, to 2.72 percent after declining to 2.67 percent, the lowest level since Aug 27th. The 2.25 percent bond due in September 2023 fell 0.085, or 85 pence per 1,000-pound face amount, to 95.935. The Bank of England published information on Monday that foreign investors reduced their gilt holdings by 6.04 billion pounds in August, the most since June 2012. That followed a net purchase of 1.27 billion pounds in July. Gilts lost 3.1 percent this year through Sept. 27. German bunds dropped 1.5 percent and Treasuries fell 2.4 percent.
Fundamental policy decisions and high impact news events that could affect sentiment on October 1st
Early in the overnight/early morning session we’ll receive the RBA decision regarding the base rate for Australia, this will be accompanied by a statement concerning the decision which is expected to keep the rate at 2.5%.
There are several PMIs to be published on Tuesday, however, few rate as high impact news events, the final European manufacturing PMI is published, expectations are for a print of 51.1. The UK’s manufacturing PMI does rate as high impact where sterling’s value is concerned, with expectation that a figure of 57.5 will be published. European unemployment data is published with the rate expected to remain at 12.1%.
High impact news events from the USA might be somewhat over shadowed by the debt ceiling impasse, however, the ISM manufacturing PMI is published expectations are for a reading of 55.3.
