Scoreboard: Sealed deal

Markets rallied on news of a US debt deal – an event which ensures no Fed taper until after February.

Stocks on Wall Street rebounded overnight; the major indexes up around 1 per cent as news broke the Senate had come to a budget deal. It should be noted that at the time of writing it hadn’t yet actually been passed by the Senate, not to forget the House. However Senators on both sides are confident the legislation will be passed. Even then, it’s not like anything will have been resolved though. It really only gives more time for Congress to carry on. Carry On, Congress – where is Sidney James when you need him? (Action! Suspense! But no Hollywood endingOctober 17.)

So the government would only be reopened until January 15 and the debt ceiling itself would only be raised till February 7, at which point I’m sure we can look forward to another ‘crisis’. I have to say I’m impressed though – I thought they'd miss the deadline, given that no one is taking them seriously.

With that in mind, and to the extent that the market doesn’t care now, come January/February markets will rally – and this time I’m not joking! Think of it, the main implication of this is that the Federal Reserve will continue to print money. There will be no taper, and this current deal ensures no taper till after February at the earliest. Even then, the ceiling is only extended till May or something; so the Fed would still likely regard the fiscal backdrop as too uncertain to taper.

Back to this current vote though – so far the signals are that a deal will be passed in both houses, just in time, with the Senate and the House to vote sometime this morning (Australian time). Note that Republican House Speaker John Boehner remains confident that if the legislation is passed in the Senate, it won’t be blocked by the House. Ted Cruz for his part said that he would vote against the deal but would not try and delay a vote.

At the bell, the S&P500 is up 1.4 per cent (1721), the Dow is 179 points higher (15,347) and the Nasdaq is also up 1.1 per cent (3837). Decent gains led by energy, healthcare, telecommunications and financials – all up well over 1 per cent. Crude too got a boost – 1 per cent to $102.2, and even gold and silver were higher, although modestly (gold up $6 to 1279). Other than that copper was flat.

Everywhere you look data and price action was being hit by the shutdown/debt crisis. US Treasury yields fell for instance – the 10-year down 7 bps to 2.64 per cent and the US Treasury even managed to sell some longer dated bills – $26 billion in 189 day bills which is the longest issue for bills since 2009 – just in case. Demand was strong though and the issue was oversubscribed by 3.8 times at a yield of 0.135 per cent. There was a bit more concern at the shorter end and 4 week bills went out at 0.24 per cent.

Then on the data front, the Beige Book reported uncertainty had increased as a result of Congress. Recall that the Fed’s Beige Book is a collection of anecdotal reports from business leaders in the 12 Fed districts. On the overall economy, it reported no real change to growth over the last month, although there was obviously some concern expressed about the US government shutdown and the effects from that. However the report noted outside of that “contacts across districts generally remained cautiously optimistic in their outlook for future economic activity”.

Bits and pieces otherwise. The Australian dollar is at 0.9548 which is about 25 pips higher than yesterday afternoon. The euro is little changed at 1.3527, while the yen is at 98.79. Outside of that, UK employment growth was solid in the three months to August, rising 155,000 after an 80,000 increase. The unemployment rate was steady at 7.7 per cent though.

That’s pretty much the state of play at the moment. For today, the SPI suggests our market will rise 0.4 per cent and there’s not a lot in the way of data. Tonight key US data scheduled includes initial jobless claims, the Philly Fed index, housing starts and a number of Fed speakers – Charles Evans, Richard Fisher, Narayana Kocherlaktoa.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.