Hot Air and More Black Smoke from the U.S. Congress

October 16, 2013

The Fitch rating agency placed U.S. sovereign debt on Watch Negative, claiming that permanent damage may already have begun.

After the U.S. House of Representative again failed to take a vote, effort reverted to the Senate.  Although a deal with agreement by both chambers before the original debt ceiling deadline of October 17 (Thursday) seems doubtful, the new hope is that tomorrow isn’t the true target date beyond which default of the debt would become unavoidable.  Consequently, markets overnight did not hit panic mode.

Movements in the dollar, whose role as reserve currency above all others could be jeopardized, were very confined.  The greenback has risen 0.2% against the yen but lost 0.3% versus the kiwi, 0.2% against the euro, Swissie and sterling, and 0.1% vis-a-vis the loonie and Australian dollar.

Share prices fell most sharply in China, 1.9%.  Other declines of 0.6% in Indonesia, 0.5% in Hong Kong, 0.4% in Taiwan, and 0.3% in South Korea and India were constrained, by comparison.  Stocks actually rose 0.6% in the Philippines, 0.3% in Singapore, 0.2% in Japan and New Zealand, and 0.1% in Australia.  The direction of movement has mostly been down in Europe, led by France (-0.8%), Britain (-0.6%), and followed by Spain (-0.3) and Germany (-0.2%).  Italian equities so far are 0.6% firmer.

Gold recovered 0.7% to $1,281.80 per ounce.  Oil edged 0.1% higher to $101.28 per barrel.

The 10-year Japanese JGB and German bund yields slid by two and one basis points; the British 10-year gilt is two basis points higher.

British labor market figures ran hot and cold.  The good news, especially since Governor Carney has tied future monetary policy most closely to unemployment, was a 41.7K decline in the claimant count of unemployment and a dip in the comparable jobless rate to 4.0% in September.  On the other hand, the ILO-basis unemployment, which is more relevant for policy purposes, stayed at 7.7%, well above Carney’s 7.0% threshold, and wage growth in the year to June-August slid unexpectedly to 0.7% overall and 0.8% for regular pay only.

Euro area CPI and trade figures were released.

  • The seasonally adjusted trade surplus rose to a two-month high of EUR 12.3 billion in August, as export growth of 1.0% outpaced the 0.2% month-on-month rise of imports.  The unadjusted January-August surplus of EUR 98.0 billion was one and half times wider than a year earlier, embodying a 4% drop in imports and 0.9% export growth.  Trade positions among Ezone members remain very disparate.
  • Revised data show a 0.5% monthly increase of consumer prices in September but a reduced on-year inflation pace of 1.1% versus 1.3% in August, 1.6% in July and 2.6% in September 2012.  On-year energy price inflation swung from 9.1% in September 2012 to negative 0.9% in September 2013.  The inflation rate for all other items declined to 1.4% from 1.8% a year earlier.  Core inflation was just 1.0% in the latest month, down from 1.1% in August and 1.5% in September 2012.

New car sales in the EU were 5.4% greater in September than a year ago after having fallen by 5.0% in the year to August.

Italy posted a 420 million current account surplus in August, down from EUR 5.92 billion in July.  The trade surplus shrunk to EUR 958 million from EUR 5.98 billion.

Spain’s index of leading economic indicators edged up 0.2% in August, but the index of coincident economic indicators slipped by 0.1%.  Switzerland’s ZEW expectations index, a gauge of investor sentiment, improved more sharply than forecast, rising to a reading of 24.9 this month from 16.3 in September.

The six main German economic institutes are said to have revised down projected German growth in 2013 and 2014 compared to forecasts made last April.

New Zealand consumer prices advanced 0.9% between 2Q and 3Q, most in two years, which doubled the 12-month inflation rate to an in-target 1.4%.  Gasoline costs jumped over 5.0%.  The data generated some speculation about a rate hike early next year.

Australia’s index of leading economic indicators, compiled by Westpac, posted its first decline (albeit just 0.1%) since 2011, suggesting a recovery that’s running out of momentum.

The Bank of Thailand as expected retained a 2.5% interest rate.  The last change was a 25-bp cut in May.

Retail sales in South Africa rose 1.1% on month and 3.0% between August 2012 and August 2013.  Those gains were above analyst forecasts.

Today’s main U.S. release will be the Fed’s Beige Book of regional conditions.  Of most interest will be any discernible drag from the fiscal stalemate.

U.S. mortgage applications ticked 0.3% higher last week, a smaller advance than the 1.3% rise in the week of October 3rd.  The 30-year fixed mortgage rate rose to 4.46% from 4.42%.

The National Association of Home Builders monthly housing market index is due, too.  Fisher, Pianalto, and George of the Fed have public speaking engagements today.  So does ECB President DraghiCanada’s monthly manufacturing survey arrives.

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

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