Daily Market Reports | Sep 30 2013
By Greg Peel
When Obama won a second term at the 2012 US election it appeared the influence of the Tea Party amongst Republicans had waned. One year on and it seems the Tea Party can still hold sway. On Friday night the Democrat majority Senate voted through a bill which would provide temporary government funding without impacting on Obamacare funding. Last night the Republican majority House voted to provide government funding only if Obamacare is delayed for one year.
Believing the 2012 election victory provided a clear public mandate in support of Obamacare, the Democrats are refusing to back down. An immovable Tea Party on the other side means House majority leader John Boehner cannot back down either. After the debacle of the 2011 ratings downgrade and the subsequent Democrat election win, Wall Street had assumed logic would prevail and there would be no real threat of another budget stand-off in 2013. Wall Street was wrong.
At this stage it appears the US government will at least partially shut down after the Tuesday night funding deadline. Resolution appears distant. Wall Street is incredulous. What happens now? No one knows, but still traders find it hard to believe the farce could last too long. Either way, Friday night’s session was not one in which to boldly bet on a swift result.
The Dow fell 70 points or 0.5% while the S&P lost 0.4% to 1691 and the Nasdaq dropped 0.2%. Wall Street was yet to know of last night’s Republican stubbornness, hence as I write the Dow futures are down another 67 points.
American politicians may have become a global joke, but Italian politicians have been a long-running joke. Hence just to add seasoning to the sauce, the Italian parliament is again in disarray after all five ministers of the People of Freedom party within the Italian coalition government resigned on the weekend on the urging of party leader Silvio Berlusconi. The resignations were in response to a letter from Prime Minister Letta demanding parliament next week express support for the government. The tenuous coalition has remained on the brink of collapse ever since the last typically indecisive election.
The call for solidarity follows the need for the Italian government to push through measures aimed at further reducing the Italian budget deficit, including an increase in the VAT rate to 22%. And to think Australia would spontaneously combust if the new government tried to lift our GST rate to 12% from 10%.
Movements on other markets on Friday night can now likely be considered a bit “yesterday’s news”, although there are other forces afoot beyond global political idiocy. After today it will be a new quarter, and the first week of the month is always PMI week. Chinese data will be first cab off the rank and expectations are buoyant. The trend in PMI data elsewhere has also been largely positive (except in Australia) with the UK a particular star and even Europe showing promising signs of improvement. Do markets take risk positions ahead of what might be further encouraging news on global manufacturing and services, or a foetal position on what might transpire in Washington?
Out of interest, Friday night on Wall Street saw the Michigan Uni fortnightly consumer sentiment index fall to 77.5 from 81.2 in August – its lowest level since April. This series is pretty up-to-the-minute, while August data for personal spending and incomes released on Friday showed a 0.3% gain in spending, the fastest rate this year, with July’s result being revised up to 0.2% from 0.1%. Personal incomes rose 0.4%, which is the biggest gain in six months. Economists correctly tipped both results.
So we see more mixed US economic signals ahead of Friday’s critical US jobs report. That is, assuming the office charged with the task of releasing jobs data is actually manned on Friday.
The US dollar index fell by 0.3% on Friday to 80.27 on shutdown fears, although if a shutdown does occur it is assumed US dollars will flow home to safety, funnily enough. Gold rose US$12.50 to US$1336.70/oz as might be expected while the Aussie is down 0.5% to 93.16 ahead of tomorrow’s RBA meeting, despite markets assuming no cut.
Metal traders in London decided to square up ahead of end of quarter and possibly positive Chinese data this week, although volumes were negligible as all bar tin rose around a half to one percent. President Obama was on the phone to the Iranian president over the weekend – something that hasn’t happened in decades – and the ongoing thawing of relations saw the oils fall further, with Brent down US58c to US$108.63 and West Texas down US22c to US$102.87/bbl.
Spot iron ore fell US$1.90 to US$131.90/t. Note that China will be closed for a holiday from Tuesday through to Friday.
The SPI Overnight fell 13 points or 0.2%.
We may well be in for a turbulent week. On the one hand we have the data, and on the other we have the US shutdown threat. Little more can be said about the shutdown at this point, so let’s concentrate on the data.
The US will see The Chicago PMI tonight and construction spending, vehicle sales and the manufacturing PMI tomorrow. Wednesday it’s the ADP private sector jobs report, and Thursday sees factory orders and the services PMI. Friday brings non-farm payrolls.
The UK and eurozone post manufacturing PMIs on Tuesday and services PMIs on Thursday. The ECB will hold a policy meeting on Wednesday.
Today brings industrial production and retail sales data in Japan along with the manufacturing PMI. Tuesday it’s unemployment, and on Friday the Bank of Japan holds a policy meeting.
HSBC will release its Chinese manufacturing PMI today and services PMI on Friday, while Beijing will release the official manufacturing PMI tomorrow and services on Thursday. China will nevertheless be closed Tuesday-Friday (no spot iron ore market).
Today in Australia sees private sector credit and the TD Securities monthly inflation gauge. Tomorrow the RBA will meet and not cut the cash rate, it is assumed. The manufacturing PMI is released tomorrow along with retail sales and the monthly house price index. Wednesday it’s building approvals, new home sales and the trade balance, and Thursday sees the services PMI.
We must not forget that in amongst the US political crisis we still have the tapering question to contemplate, for which Friday’s jobs number, if we get one, will be a vital clue. Fedheads will continue to shoot their mouths off all week.
Rudi will appear on Sky Business today at 11.15am, Wednesday at 5.30pm and Thursday at noon.
For further global economic release dates and local company events please refer to the FNArena Calendar.
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