U.S. Debt Crisis Averted for Now.. Markets Turn to React

October 17, 2013

U.S. agreement details:

  • Government shutdown suspended until January 15, barring a budget deal before then.
  • Debt ceiling raised temporarily through February 7, though real deadline now sometime in March.
  • President Obama has enhanced safeguards to avoid a default at the next crisis.
  • Deal agreed by 81-18 senate vote and 285-144 vote in the House.
  • There’s lots of talk of kicking the can down the road, since the agreement doesn’t embody a compromise on budget elements.
  • Dagong, the Chinese rating agency, downgraded U.S. sovereign debt by a notch and retained a negative outlook on its rating.
  • No information yet on when delayed U.S. economic data will be released.

Market reaction:

  • The dollar has suffered sell-the-fact losses, dropping 1.0% against the Swiss franc, 0.7% versus the yen, kiwi, euro and sterling, 0.6% relative to the Aussie dollar and 0.3% against the loonie.  The yuan is steady but remains marginally stronger than 6.10 per dollar.
  • European stocks are down 0.6% in Italy, 0.5% in Germany, 0.4% in France and 0.1% in Spain and Britain.
  • In the Pacific Rim, stocks rose 1.2% in the Philippines, 0.8% in Japan, 0.6% in Indonesia, 0.5% in Taiwan, and 0.4% in New Zealand, Australia and Singapore. But there were drops of 0.6% in India and Hong Kong and 0.3% in China.
  • Ten-year British gilt and German bund yields declined by five and four basis points, respectively.  The 10-year JGB yield dipped a basis point.
  • Gold rebounded by a strong 2.0% to $1307.20 per ounce.  Oil is 0.4% softer at $101.88 per WTI barrel.

China’s central bank did not inject extra liquidity today.  Foreign direct investment in China was 4.9% higher than a year earlier in September and recorded a 6.2% on-year advance in January-September.

A measure of Australian business confidence improved four points to a reading of +3 in the third quarter.

New Zealand consumer confidence printed at 2.9% in October, 6.3 points better than the month before. 

Japanese machine tool orders were 6.3% lower than a year earlier in September, according to unrevised final figures for that month.

South Korean producer price inflation became even more negative in September at minus 1.8% than August (-1.3%).  Singapore’s trade surplus widened 8% to SGD 3.87 billion in September.  The Hong Kong jobless rate stayed at 3.3% last month.

South African wholesale turnover rose 0.4% in August from July and 5.3% from a year earlier.

Euroland’s current account surplus widened EUR 1.9 billion to EUR 17.4 billion in August.  There was a non-seasonally adjusted EUR 189.6 billion current account surplus over the last 12 reported months compared to EUR 85.0 billion in the year to August 2012.

Construction output in the euro area posted a 0.5% increase in August following gains of 0.7% in July and 1.5% in June.  Output had slumped by 1.4% in the final quarter of 2012 and a further 3.7% in the first quarter of this year, and such remains 4.7% weaker than in August 2012.

Portuguese producer prices posted drops of 0.5% on month and 1.6% on year in September.  Sweden’s 8.0% jobless rate in September was unchanged from August.  Likewise, the Dutch unemployment rate stayed at 8.6%.

British real retail sales growth September beat market expectations, climbing 0.6% from August and 2.2% on year.  Excluding fuel, the gains were 0.7% on month and 2.8% on year.

Icelandic CPI inflation slowed to 3.8% in September.

Scheduled U.S. data today include the Philly Fed manufacturing index, and weekly jobless insurance claims.  Central bank interest rate decisions will be announced in Chile and Serbia.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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