The USA debt impasse begins to get ‘real’ as European economic sentiment falls…

Oct 7 • Mind The Gap • 2460 Views • Comments Off on The USA debt impasse begins to get ‘real’ as European economic sentiment falls…

In our morning roll call publication (printed this morning) we quoted U.S. Treasury secretary Jacob Lew sharing his concerns regarding the USA debt ceiling impasse, for those who missed it the key quotation is worth repeating;

On the 17th, we run out of our ability to borrow, and Congress is playing with fire. If they don’t extend the debt limit, we have a very, very short window of time before those scenarios start to be played out. If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default. There is no option that prevents us from being in default if we don’t have enough cash to pay our bills.”

So far this morning the noises from the combatants in Congress are not encouraging, as each day passes the reality of a looming default comes into sharp focus. As Jacob Lew surmises; for the first time in its history the unthinkable may happen, the USA would be unable to pay its bills.

Sadly this impasse is not drawn by dividing lines on the profligacy of the USA government versus the republicans wanting to see the Obama administration exercising good housekeeping by firmer control on its spending, we’re witnessing politics and theatre taking centre stage. If readers want proof of how this impasse is being fought out then they should do some research attempting to find mention of what the new debt ceiling should be. Or attempt to find any critique (from the opposition Republicans) regarding their grave concerns as to how the debt ceiling has risen so quickly since the agreement reached in 2011.

World bank predictions

The World Bank is warning that East Asia’s economic growth is slowing, it’s cut its GDP forecast for several nations, including China. It now expects the Chinese economy to expand by 7.5% this year, down from its April forecast of 8.3%. For 2014, the forecast is cut from 8% to 7.7%. In its report, the Bank said weaker commodity prices means weaker growth in the region. It urged Chinese policymakers to tackle the consequences of recent loose policy and tighten financial supervision.

“Developing East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand. Growth in larger middle-income countries including Indonesia, Malaysia, and Thailand is also softening in light of lower investment, lower global commodity prices and lower-than-expected growth of exports.”

Sentix sentiment index

The European Sentix index has been published in the first part of the London and European trading session and the print missed the expectation by some distance. Economists polled by Bloomberg had predicted the number would rise to 10.9, instead the number came in at 6.1. Sentix said the 907 investors it surveyed between October 2 and 5 were the most upbeat about the current situation since the same month two years ago, with a sub-index on this rising to -8.5 from -8.8 last month. But they became more pessimistic about the future. A sub-index tracking expectations fell to 21.8 from 23.0 in September.

“After that record-breaking leap, there was a small drop of 0.4 points in October and that should be interpreted as stabilisation at a level that is now healthy again. That means annual gross domestic product (GDP) growth in the euro zone probably normalised in the current quarter because if the overall index has a value of zero, it means that optimism and pessimism about the economy are in balance.”

Market snapshot at 10:00 am UK time

In the overnight/early. Opening trading session the Nikkei index closed down 1.22%, Hang Seng was down 0.71%, with the CSI closing up 0.59%. The ASX 200 closed down 0.90%. European markets opened in the red with all major indices maintaining that sentiment; the STOXX index is down 1.08%, FTSE down 0.76%, CAC down 1.22%, DAX down 1.17%, with the Athens exchange breaking the mould, up 0.44% on the day.

ICE WTI oil is down 1.08% on the day at $102.72 per barrel, NYMEX natural is up 0.77% at $3.53 per therm. COMEX gold is up 0.27% at $1313.30 per ounce, with silver on COMEX down 0.15% at $21.78 per ounce.

Looking towards the New York open the DJIA equity index future is currently down 0.94%, the SPX down 1.04% and the NASDAQ down 0.96% as an equity index future. All three indices suggesting that the USA markets will open significantly down on open, with the DJIA finally smashing through the critical 15,000 psyche barrier.

Forex focus

Yen strengthened by 0.6 percent to 96.92 per dollar early in the London trading session and added 0.4 percent to 131.56 per euro. The franc gained 0.4 percent to 90.37 centimes per dollar. The yen climbed versus all of its major currency peers after U.S. Treasury Secretary Jacob J. Lew urged Congress to extend the nation’s debt limit in order to avoid a default, boosting demand for Japan’s currency as a safe haven.

The dollar has fallen by 2.5 percent during the past month, the worst performer amongst the 10 developed-market currencies tracked by Bloomberg’s Correlation-Weighted Indices. The yen is little changed, while the franc has risen 1.6 percent and the euro has gained 0.8 percent. The pound has advanced 0.4 percent. The U.S. Dollar Index, tracking the greenback versus 10 major currency peers, was little changed at 1,009.54, the sixth decline in seven days.

New Zealand’s currency, the kiwi, slipped 0.4 percent to 82.83 U.S. cents and was 1 percent weaker at 80.29 yen in early trading. It has gained 3.6 percent and 1.3 percent versus its American and Japanese counterparts in the past month.

Sterling climbed 0.1 percent to 84.60 pence per euro after touching 84.76 on Oct. 4th, the weakest level since Sept. 3rd. It advanced 0.2 percent to $1.6041.