We highlighted the high impact news events for Tuesday in our ‘Mind The Gap’ section, that could affect sentiment in the afternoon session. The Richmond Fed Manufacturing survey came in below economists expectations; the Fifth District manufacturing activity was little changed in September, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments, capacity utilization, and vendor lead time flattened, while the volume of new orders slowed. The backlog of new orders remained in decline. Finished goods inventories and raw materials inventories built up at about the same pace as in August. Manufacturing employment fell and the average work week shrank, while wage growth remained robust. Looking ahead six months, manufacturers’ optimism about business prospects strengthened.
The Conference Board consumer confidence index also fell; The Conference Board Consumer Confidence Index, which had increased slightly in August, decreased in September. The Index now stands at 79.7 (1985=100), down from 81.8 in August. The Present Situation Index grew to 73.2 from 70.9. The Expectations Index fell to 84.1 from 89.0 last month. The monthly Consumer Confidence Survey, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch.
Has the USA economy topped out?
Once again we read published surveys suggesting that the USA economy may have peaked, these indices, matched with previous surveys, are leaving analysts quizzing just where any future growth will arrive from as the USA economy appears to have ‘topped out’. And what could be more concerning for investors is that this topping out may have occurred when the debt ceiling is once again under question, as is how long the Fed can continue to prop up equities markets (and the general economy) with their open ended stimulus programmes. Unemployment is remaining stubbornly resistant; the average weekly new unemployment claims appear trapped in a narrow range of 320-350K (despite the loss of data from California and Nevada), therefore the Fed’s aim to hit 6.5% unemployment before switching off their stimulus looks extremely optimistic.
Debt ceiling row is unlikely to hit USA credit rating
The impasse over the U.S. government’s debt ceiling would be worse for financial markets than a government shutdown, but neither is likely to hurt the U.S. sovereign credit rating according to Moody’s Investors Service. Moody’s expects the United States will avoid a shutdown and increase its debt limit, the rating agency has stated in in a report published on Tuesday evening. However, failure to lift the cap on what the government can borrow could “theoretically affect all categories of government spending, including debt service.” Nevertheless, a debt ceiling impasse and a government shutdown are unlikely to affect the U.S. Sovereign ratings.
Steven Hess, Moody’s lead U.S. sovereign credit analyst;
[quote]”At this time we don’t see that (rating cut) as a consequence of these short-term events. The rating is based more on the long-term outlook for the debt, rather than what we think will be short-term events. The U.S. Treasury bond is the benchmark of the world’s financial market. To default on that would create a global financial problem.”[/quote]
Market overview
European equity markets enjoyed positive sessions on Tuesday, STOXX closing up 0.57%, FTSE up 0.21%, CAC up 0.56%, DAX up 0.34%, with the Athens exchange closing up by a considerable 2.60% despite strikes and the possibility that the troika won’t like what it inspects during its next visit as the days count down to its landing in Athens.
Commodities experienced mixed fortunes in Tuesday’s sessions, ICE WTI oil finished the day down 0.44% at $103.13 per barrel, whilst NYMEX natural finished the day down 2.8% at $3.50 per therm. COMEX gold finished the day down 0.24% at $1323.80 per ounce, with silver on COMEX down 0.56% at $21.74 per ounce.
Looking towards equity index futures; the DJIA is (at the time of writing) down 0.27%, the SPX equity index future is flat with the NASDAQ equity index future up 0.17%. European equity index futures are mostly positive, with the Athens exchange equity index future up 2.29%.
Forex focus
The U.S. Dollar Index, which tracks the greenback versus its 10 major peer currencies, rose 0.2 percent to 1,014.14 late in the New York session after climbing to the highest level since Sept 18th. The U.S. currency strengthened 0.2 percent to $1.3470 per euro after rising 0.2 percent yesterday. The greenback was little changed at 98.73 yen. The euro dropped 0.3 percent to 132.98 yen. The dollar rose as investors pared bets on a weaker greenback amid speculation that the Federal Reserve will maintain monetary stimulus as it awaits a pick-up in economic growth.
The New Zealand dollar fell versus all of its 31 of its most-traded counterparts as declines in global stocks reduced investor appetite for higher-yielding assets. The MSCI Asia Pacific Index of shares fell 0.6 percent. The kiwi tumbled 1.1 percent to 82.80 U.S. cents after decreasing 1.3 percent, the most since Aug 21st. Australia’s dollar dropped 0.4 percent to 93.92 U.S. cents.
Sterling fell 0.2 percent to $1.6009 after climbing to $1.6163 on Sept 18th, the strongest since Jan 11th. The pound weakened for the third time in four days versus the dollar after the British Bankers Association said loans approved for house purchases rose to 38,228 in August from a revised 37,428 the previous month. Economists surveyed by Bloomberg forecast 38,950.
Fundamental policy decisions and high impact news events that may affect investor sentiment on September 25th
New home sales in the USA are forecast to come in at 422K, core durable goods orders are set to increase by 1.1%. Crude inventories are predicted to come in down 1 million barrels.
