Scoreboard: House of cards

There was no clear relief rally on the US debt resolution, but big currency moves saw the Australian dollar spike.

The only surprise for me out of all of this, was that they couldn’t even be bothered to change the script – not even slightly. So with an hour to spare, the House agreed with the Senate to reopen the government (temporarily) and lift the government ceiling (also temporarily) and of course this all happened in our trading session yesterday. I wrote yesterday that the only impact out of this would be a taper delay and it looks likes markets agree – as some of the biggest moves overnight were on the US dollar and gold.

So the US dollar index dropped 0.8 per cent overnight, which saw the Australian dollar spike almost a full cent to 0.9633. Obviously these kinds of moves put the Reserve Bank in a very awkward position and it really complicates Reserve watching, given that it has chosen to target the exchange rate recently. Watch this space though as it’s a big move up and there could be more of that over coming months. Outside of the Australian dollar, the euro was up even more strongly – 130 pips to 1.3676. The yen for its part was down to 97.84 from 98.45.

Gold rose $37 on the expectation the printing presses will run for longer and silver wasn’t too far behind, rising 2.1 per cent. Outside of that, there was no love as copper weakened; falling 0.5 per cent and crude had a big fall, even with that US dollar support – down 1.6 per cent to $100.6.

As for equity markets, the session was mixed. No clear relief rally, although punters here never took Congress seriously anyway. I don’t think anyone does, do they? The US is a laughing stock, although that’s not a good thing as they may feel they need to start another war or something. Anyway, stocks. The S&P500 was up 0.7 per cent at the close (1732) and the Nasdaq wasn’t too far behind, up 0.5 per cent. Despite this, the Dow fell 0.1 per cent (15,361) following disappointing earnings from three of its component stocks – including The Vampire Squid (Goldman Sachs) – which in doing ‘God’s work’ saw a fall in revenue from $8.4 billion to $6.7 billion. Otherwise, European stocks were flat to weaker on the major indexes.

That leaves debt markets, and last night they rallied. The US 10-year yield fell to 2.59 per cent from 2.62 per cent and this took Aussie 3-year and 10-year futures up 3-3.5 ticks (96.93 and 95.935). The real action though was at the very short end – Treasury bills and even the US has backed away from default, investors have though it fit and proper that they should receive no return from holding them again. So the one-month yield fell from about 0.14 per cent to 0.01 per cent.

Bits and pieces otherwise. On the data front, US jobless claims fell a little in the week to October 11, to 358,000 from 373,000, but claims are fairly meaningless at the moment. Recall the data are being hit by the shutdown. Good news was also seen out of the Philly Fed index and while this index fell to 1938 from 22.3, the point isn’t that it weakened. The point is that the index held its value up around the 20 mark, which is well above average and points to a strong pick-up in activity. Otherwise outside of the US, the UK economy continues to show signs of recovery with retail sales rising 0.7 per cent in September.

Looking at the day ahead – the SPI points to a 0.5 per cent gain for our market, yet the actual result could be heavily influenced by an expected barrage of Chinese economic data, which is due around 12. The Reserve Bank governor’s speech at 1310 AEST might also be interesting – might, as the title is: The United Kingdom and Australia: Shared History, Shared Outlook. Given that the BoE is printing money and has promised not to raise rates for years the title of that speech scares me. That’s pretty much it, not much data tonight.

Have a great weekend…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.