Daily Market Update 9 October 2013 - Shutdown selloff gathers pace
Making it the seventh-longest in the history of the United States, the US government shutdown rolled into its eighth day overnight with both sides seemingly no closer to finding a solution to solve the budget impasse. In a shot aimed at the Republican ‘Tea party’, President Obama<http://edition.cnn.com/2013/10/08/politics/shutdown-showdown/index.html> stated that he will not talk to the Republicans until extreme parts of the party stop forcing House Speaker John Boehner to issue threats to the US economy.
Overnight the IMF downgraded<http://www.imf.org/external/pubs/ft/survey/so/2013/NEW100813A.htm> their global growth outlook for this year and next, the second such time in the past 3 months, with the group now expecting the economy to grow 2.9% in 2013, down 0.3ppts from their previous estimate, with 2014 also revised down to 3.6% from 3.8% prior. While there was no specific revision made to Australia, in a sign that perhaps weaker-than-expected growth is likely in the period ahead, the group also downgraded their Chinese growth forecast for China in 2014, lopping off a further 0.3ppts to 7.3%.
An underwhelming set of German trade figures<https://www.destatis.de/EN/PressServices/Press/pr/2013/10/PE13_333_51.html;jsessionid=0B1A8AEDB3691A15185022094142A714.cae4> were released overnight with exports and imports missing expectations in August. From a month prior exports grew by 1%, above the 0.8% contraction of July but below forecasts for an increase of 1.5%, while imports rose 0.4%, less than half the rate expected. Despite missing on both fronts, with imports gaining at a faster pace than imports, the monthly trade surplus swelled to €15.6b, above the €15.1b figure expected.
German industrial orders fell unexpectedly in August with a decline of 0.3% reported<https://www.destatis.de/EN/FactsFigures/EconomicSectors/IndustryManufacturing/_Graphic/NewOrders.png?__blob=poster>. While an improvement on the upwardly-revised 1.9% fall seen in July, the result was well below expectations for an increase of 1.2%. Raising questions over the strength of the global recovery, particularly in the Eurozone, foreign orders fell heavily, down 2.1% following a 3.1% contraction in July, with orders from within the economic bloc sliding by a further 2.9%. While they were weak, helping to offset the trend, internal orders rose strongly, up 2.2%, after falling by 0.1% in July.
Italy’s public deficit narrowed sharply in Q2 with a decline to 1% reported<http://www.istat.it/en/archive/100398>. The figure was below the 2.2% differential reported in the same quarter last year and left the H1 gap at 4.1% of GDP compared to 4.4% in H1 2012.
Spanish industrial production contracted at a faster pace in August with an annualised decline of 2.0% reported. The figure was in line with expectations but below the 1.2% decline reported in the year to July.
Consumer price deflation returned to Switzerland in September with CPI falling 0.1% from a year earlier. The figure was in line with expectations and was below the flat reading achieved in August. Keeping with Swiss efficiency, in a separate report, unemployment held at 3% for a second-consecutive month in September, once again in line with expectations, with the reading just 0.1% above the 2013 low of 2.9% struck in June.
Canadian housing starts gained strongly in September with an annualised increase of 193.6k reported<https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?cat=58&itm=1&lang=en&fr=1381261668246>. The figure was higher than both the upwardly-revised 184k pace of August and expectations for an increase of 185k.
Canada’s trade deficit grew in August with an increase to $1.31b reported<http://www.statcan.gc.ca/daily-quotidien/131008/dq131008a-eng.pdf>. The figure was higher than the upwardly-revised $1.19b deficit of July and expectations for a reduction to -$700m.
The Day Ahead (All times AEST)
The ASX 200 look set to start the session firmly in the red with SPI futures pointing to a decline of 40pts on the open. While there’s no debate that the concerns over the US government impasse are growing, as was the case yesterday, we expect the index to trim losses over the course of the session as investors yet again anticipate a near-term budget solution followed by an obligatory short-covering rally on Wall Street.
The AUDUSD has returned to familiar levels this morning after hitting a fresh 3-week peak overnight with the currency currently buying .9434. While the pair will likely be bid before the release of consumer confidence figures at 10.30am, unless we get any unexpected news from the US budget negotiations, another session of range trading is favoured. Support is found below .9415 and again ahead of .9380 with resistance kicking in at .9450 and .9484.
Australia’s Westpac-MI consumer sentiment survey for October will be released this morning at 10.30am. On the regional front, the Bank of Japan will release the minutes of their September 4-5 monetary policy meeting at 10.50am.
Data releases this evening include the MBA mortgage market index and wholesale inventories from the US, industrial production, trade and NIESR GDP estimate in the UK, German industrial production along with Greek CPI. In an event that will trump all, the minutes of the US Federal Reserve’s FOMC September meeting will be released at 5am tomorrow morning. Given the ‘Fed speak’ we’ve heard since it occurred, it should make for some interesting reading.