The Monday Report

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By Greg Peel

Are cracks appearing in the Republican resolve?

The Republicans have been stoic in their determination to date to undermine Obamacare, but have perhaps been surprised at just how stubborn the president has been on the other side. As the US government endured a third day of shutdown, Obama continued to make it clear he would not bow on his healthcare reforms. The Republicans have likely become to realise it is they, not the unmoved Democrats, who are drawing the ire of the electorate. The rest of the world, most of which already has some sort of affordable healthcare policy, has just shaken its head in incredulity.

Senior Republicans have now suggested a change of course, one which would see Obamacare left intact while other general budget concessions are made. The Republicans cannot back down from the fight at this stage, but they can still withdraw and claim victory on government spending. In the Republicans’ sights is the upcoming debt ceiling deadline which, if crossed without resolution, would lead to a “catastrophic” US default, to use the Treasury’s words. John Boehner does not want to be seen as responsible for that, and has pledged that concessions on spending will be matched with an increase to the debt ceiling limit. The Democrats are prepared to listen.

That the debt ceiling does not look like being an issue was heartening for Wall Street on Friday. Wall Street has never been overly perturbed about the shutdown, having become rather used to these political charades, which is evident in only a relatively minor correction in stock prices. There is still talk the two parties will push the deadlock out to the eleventh hour, meaning almost two more weeks of shutdown, because that’s the way the game has been played of late. But there might yet be an earlier resolution.

Either way, Wall Street rose on Friday. The Dow gained 76 points or 0.5% and reclaimed 15,000, while the S&P added 0.7% to 1690 and the Nasdaq rose 0.9%.

There was no September non-farm payrolls report. As to when there might be one, that will depend on how long the shutdown lasts. For now, the tapering debate remains out of the spotlight, albeit the shutdown itself is certainly not bringing the Fed’s tapering decision forward in time. The US dollar index regained ground on Friday nevertheless, rising 0.4% to 80.17. That most reliable of safe havens – the Aussie dollar – is up another 0.5% to US$0.9435. The RBA will be hoping for an end to the US debt and tapering debates sooner rather than later.

Gold slipped US$5.10 to US$1310.90/oz. Base metals have been bouncing around like ping pong balls during the past week in a thin market devoid of Chinese involvement. The US shutdown has been the underlying theme but technical triggers have been in play, and on Friday the metals decided to go up. Indeed, while copper rose 1%, nickel rose 3% and tin 4%.

The US energy industry was just starting to count its chickens at the end of an unusually benign hurricane season, when suddenly a storm began to brew in the Gulf. Tropical Storm Karen is projected to track straight into the Louisiana refineries if it intensifies, and Gulf rigs were evacuated on Friday as a precaution. Brent crude rose US82c to US$109.46/bbl and West Texas rose US39c to US$103.70/bbl.

The SPI Overnight rose 31 points or 0.6%.

Whether or not the shutdown drags on, Wall Street will enter the new week feeling a little less uncertain, particularly in regards to the debt ceiling. There won’t be a lot in the way of US economic data to fuel potential movement, given most of this week’s reports won’t be released unless the government starts up again. Hence we may or may not see consumer credit tonight, the trade balance tomorrow, wholesale trade on Wednesday, the Treasury budget on Thursday, and retail sales, business inventories and the PPI on Friday.

Presumably we will, nevertheless, see the minutes of the September Fed meeting on Wednesday, chain store sales data on Thursday and the Michigan Uni fortnightly consumer sentiment measure on Friday.

The Bank of England will hold a policy meeting on Thursday but given the strength of the UK recovery, not much is expected.

China will be closed for a final day of holiday today before returning tomorrow, and the Chinese trade balance for September will be released on the weekend.

Today in Australia is a public holiday in NSW, Queensland, the ACT and South Australia. The ASX is nonetheless open and offering up thin trade. The construction PMI will be released today.

Tomorrow sees the ANZ job ads series and the NAB business confidence survey. Wednesday it’s the Westpac consumer confidence survey and on Thursday the September jobs report.

On the local stock front, we’re beginning to see the first trickle of AGM season, with October ultimately providing a flood. Bank of Queensland ((BOQ)) will release its full-year result on Thursday.

Rudi will not appear on Sky Business this week as he's working from wet and chilly Melbourne.

Note that with Daylight Savings having begun in relevant states, from tomorrow morning the NYSE will close at 7.00am Sydney time.
 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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