The unthinkable may happen; USA govt looks odds on to shut down at midnight USA time on October 1st

Sep 30 • Mind The Gap • 2406 Views • Comments Off on The unthinkable may happen; USA govt looks odds on to shut down at midnight USA time on October 1st

In many ways it defies belief that a modern (supposed) democracy can reach a situation were its economy can be harmed due to the stubbornness of its politicians. The impasse regarding the debt ceiling and setting a new budget appears no closer as the govt. apparatus walks slowly towards an inevitable shutdown.

Not even the prediction from several economists; that the USA economy could lose up to 1.5% of its GDP this year, a GDP that has been incredibly elusive to experience given the Great Recession that the USA escaped from, has motivated the two parties ‘up on the hill’. The only resolution appears to have been the unanimous act of paying the troops/armed services, who wants a shutdown with the potential for unrest, with the last line of defense not paid?

In the overnight/early morning Asian session there were several medium/high impact news events published. Manufacturing PMI for Japan was published, printing at 52.5. Business conditions continued to improve at a solid pace in the Japanese manufacturing sector in September. New orders rose at the fastest rate in over three years, output growth strengthened and backlogs grew at the fastest pace since April 2006. However, employment failed to respond to these developments and was broadly unchanged. Retail sales in Japan came in as expected at 1.1% up (month on month) whilst preliminary industrial production unexpectedly fell by 0.7%.

The New Zealand ANZ business confidence index came in at 54.1 whilst the Chinese HSBC final manufacturing PMI came in below expectations at 50.2. German retail sales have risen by 0.5% month on month, below expectations of a 0.8% improvement.

Looking at the UK data just published, lending to individuals came in as expected at £1.6 billion, whilst the money supply figure remained static at 0.7%, mortgage approvals in the UK advanced to 62K, this was in line with expectations.

Market snapshot at 10:00 am UK time

The MSCI All Country World Index lost 0.6 percent early in the London trading session. All 10 groups in the Asian equity gauge fell. Japan’s Topix Index (TPX) slumped 1.9 percent, trimming its first monthly gain since April to 8 percent. The Nikkei closed down 2.06% in the overnight Asian session. The Hang Seng down 1.50%. The ASX 200 closed down 1.66%. Looking towards European markets the STOXX index is down 1.08%, the FTSE down 0.77%, the CAC down 1.09% and the DAX down 1.00%. The Italian bourse, the MIB, is down the most on the day by 1.67% with governmental partisan issues affecting overall sentiment. Italy’s government is on the verge of collapse after allies of former leader Silvio Berlusconi said they would quit the cabinet.

ICE WTI oil is down 1.11% at $101.75 per barrel, NYMEX natural is down 1.45%, gold on COMEX is up 0.29% at $1341.80 per ounce, with silver up 0.16% at $21.82 per ounce.

Looking towards the New York open the DJIA equity index future is currently down 0.72%, SPX down 0.72% and the NASDAQ down 0.57%, the expectation is that an imminent USA govt. shutdown will affect sentiment negatively.

Forex focus

Sterling rose by 0.4 percent to 83.49 pence per euro early in the London session after appreciating to 83.40 pence, the strongest level seen since Jan 17th. Sterling was little changed at $1.6145. The pound strengthened for a fourth day versus the euro after an industry report showed U.K. house prices rose the most in six years this month. British lenders granted 62,000 mortgages, the most granted since March 2008.

The dollar touched 97.53 yen, the weakest level seen since August 29th, before trading 0.4 percent lower at 97.89 yen early in the London session. Japan’s currency added 0.6 percent to 132.11 versus Europe’s 17-nation shared currency and reached 131.38, the strongest level seen since Sept 9th. The euro declined by 0.2 percent to $1.3497. The dollar dropped to a one-month low versus the yen as the political wrangling over the budget threatened a U.S. government shutdown from tomorrow.