Scoreboard: Shutdown stasis

The impact of the shutdown was a little more visible again last night but only just in most cases. US stocks, for instance, were off 0.1 per cent on the S&P500 (1693), while the Nasdaq fell only 0.2 per cent (3809). Losses were a little more pronounced on the Dow which fell 0.4 per cent (58 points to 15,100) – not much. Other than that, the US 10 -year bond was little changed at 2.62 per cent.

Commodities even rose. Gold reversed yesterday’s fall – up $30 to $1316 – and silver was up 2.8 per cent. Yet you would expect copper and crude to fall, especially with well-timed news that the US is outpacing Russia in terms of fuel production. But here we saw crude rise 1.8 per cent ($103.8) and even copper was up 1.2 per cent. So again, no consistent reaction in the market.

Now, in terms of the budget negotiations or shutdown progress itself, there seems to be none – each side digging in and Obamacare the key point of contention. Indeed a proposal by Senate majority leader Harry Reid to negotiate on wide ranging budget items if the House passes short-term measures to open the government, was quickly rejected.

No sign of how long it will last then, and there is talk that this will morph into a default crisis at some point (the debt ceiling needs to lift by October 17). Either way, policy makers are making hay. The Federal Reserve’s Eric Rosengren (voter) suggested overnight – and I don’t think this is any great surprise – that the Fed would be unlikely to taper, and indeed shouldn’t think of tapering around the shutdown. He suggested the Fed would want to see a reduction in fiscal headwinds and an easing in the uncertainty that fiscal policy is generating before the taper occurred.

Outside of the shutdown, the news flow wasn’t that great either. A ‘disappointing’ US jobs figure was the other major news story, although my belief is that you can’t characterise 166,000 jobs as disappointing. They missed expectations (180,000), but if payrolls print anything close to that, it’s stronger jobs growth than what we saw, on average, pre-GFC. It’s a good result.

But this is consistent with the PR strategy of distorting data outcomes. Accentuate a negative – and I can’t quite get over the attempt at making 166,000 the new 80,000 – making it a soft outcome when it isn’t. It’s all about keeping the printing presses going. In any case we are unlikely to see the payrolls figures this Friday due to the shutdown, and this was another reason Rosengren didn’t want to indulge the idea of a taper. The government shutdown means that data isn’t being collected and the Fed would be flying blind.

Over in Europe, the European Central Bank even piped up about the US shutdown, suggesting it threatened the recovery not only in Europe, but around the globe. It kept rates steady though and took no other action, although it said it could. It said it had many options to deal with a eurozone recovery, which is still fragile, weak and uneven.

The euro shot higher nevertheless, up 75 pips (1.3596) shortly after Mario Draghi’s comments. It’s settled down to 1.3582 now which is some 60 pips or so higher than yesterday afternoon (at 1630 AEST). There wasn’t a lot of action otherwise – the Australian dollar is about 40 pips higher at 0.9389 while the yen is stronger and falling a bit to 97.37 from 97.7.

So looking at the day ahead, the SPI suggests our market will rise 0.2 per cent today and the only data to note is the Chinese non-manufacturing PMI at 1100 AEST. US data is to include jobless claims, factory orders and the non-manufacturing ISM, not to forget a barrage of Fed speakers.

Have a great day...

Adam Carr is a leading market economist.

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