Treasury secretary Jacob Lew stated on Wednesday evening that the USA government will have finally exhausted its borrowing authority by 17 October, leaving the United States just $30bn cash on hand to pay its bills. The government officially reached its $16.7tn debt limit in May. Since which time it’s been using “extraordinary measures”, such as suspending US investments in federal employee trust funds and raiding pension funds, in order to create about $300bn in additional borrowing room.
Economists, financial market experts and certain USA politicians are warning that the stock market could plummet and that investors would demand higher returns on Treasury notes, which could raise interest rates and therefore harm the economy.
Jacob Lew
[quote]”If the government should ultimately become unable to pay all of its bills, the results could be catastrophic.[/quote]
[quote]”The United States should never have to choose, for example, whether to pay social security to seniors, pay benefits to our veterans, or make payments to state and local jurisdictions and health care providers under Medicare and Medicaid,” Lew said. “There is no way of knowing the damage any prioritization plan would have on our economy and financial markets. It would represent an irresponsible retreat from a core American value: we are a nation that honors all of its commitments.[/quote]
[quote]”The president remains willing to negotiate over the future direction of fiscal policy, but he will not negotiate over whether the United States will pay its bills for past commitments,” Lew wrote. Extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has already approved.”[/quote]
Demand for U.S.A. Capital Goods Less Than Forecast
Non-military capital equipment spend, excluding aircraft, increased by 1.5 percent after a 3.3 percent drop in July, the Commerce Department reported in Washington on Wednesday. The median forecast of economists surveyed suggested a 2 percent gain. Orders for goods such as computers and machinery rose less than forecast in August, showing a pickup in U.S. business spending will take time to develop.
Market overview
The SPX has dropped over 1.9 percent during the past five trading days as investors remain cautious as to whether or not the pending government shutdown will harm economic growth. The current fall is now the longest witnessed on the index since Dec 28th 2012, when USA lawmakers clashed over the impending automatic spending cuts and tax increases known as the “fiscal cliff”.
The NASDAQ index fell by 0.19%, whilst the S&P 500 (SPX) fell by 0.3 percent to 1,692.77 late in in the New York session, its fifth straight losing session in succession. The Dow Jones Industrial Average slid by 61.33 points, or 0.4 percent, to 15,273.26. About 5.9 billion shares changed hands on U.S. exchanges, in-line with the three-month average.
European indices experienced mixed fortunes; STOXX index closing up 0.15%, FTSE closing down 0.30%, CAC was flat as was the DAX. The IBEX closed up the most in Europe by 0.82%.
Commodities
ICE WTI oil finished the day down 0.46% at $102.66 per barrel with NYMEX natural up 0.34% at $3.50 per therm. COMEX gold finished the day down 0.16% at $1334.0 per ounce, silver on COMEX was down 0.26% at $21.81 per ounce.
Equity index futures
At the time of writing the DJIA equity index future is printing up 0.10%, the SPX up 0.09%, NASDAQ equity index future is up 0.16%. European indices look set to open down, the FTSE equity index future is down 0.24% the DAX flat as is the CAC.
Forex focus
The U.S. Dollar Index, tracking the greenback versus 10 major currencies, slipped 0.2 percent to 1,012.33. The euro appreciated 0.4 percent to $1.3526 per dollar late in the New York session. The 17 nation shared common currency rose by 0.1 percent to 133.14 per yen. The dollar fell 0.3 percent to 98.43 yen. The euro advanced versus the dollar on signs of economic strength in the 17-nation region and concerns that the Washington budget talks could lead to a federal shutdown.
The New Zealand dollar fell for a second day versus the dollar after the government said the nation’s trade deficit widened to NZ$1.2 billion ($989 million) in August, the biggest shortfall in five years. The kiwi declined 0.5 percent to 82.41 U.S. cents.
The euro has gained 5.7 percent this year, the biggest increase amongst the 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The dollar gained 2.8 percent and the yen fell 10.7 percent.
Bonds
Treasury bills maturing close to the deadline for raising the borrowing ceiling were little changed. Rates on bills due on Oct. 24 were 0.015 percent, compared with 0.005 percent two weeks ago. The rate on bills due Oct. 31 has held within two basis points of zero during the period.
Fundamental policy and high impact news event that could affect sentiment on September 26th
The UK’s current account is published on Thursday morning with the expectation that the print comes in at -£11.2 bn for the month. The final GDP figure is published by the UK’s ONS with the expectation that the previous estimate of 0.7% GDP to be confirmed.
USA weekly unemployment claims are published, the prediction is for 319K, however, given the ‘missing in action’ figures from California and Nevada, due to their computer systems being offline, these figures are now rendered completely unreliable.
Pending home sale in the USA are scheduled to fall by 0.9% adding fuel to the fire that the USA secular housing ‘boom’ may have reached a natural organic end.
