Scoreboard: Watch and wait

Markets are relatively calm despite the US political impasse, with Wall Street falling but not panicking.

Everyone is just watching and waiting now, waiting to see how the debt crisis unfolds and just how stupid US politicians really are. The situation as it stands is that President Obama won’t negotiate while the government is shut down and he has proposed a temporary increase in the debt ceiling while Congress negotiates.

It’s interesting to note on that front that ratings agency Moody’s thinks the US won’t default, even if the debt ceiling is not increased. At the moment Moody’s and Fitch both rate the US as AAA – Standard and Poor’s downgraded the US to AA after the last debt ceiling debacle. Anyway, the Republicans have said they won’t reopen the government until the Democrats agree to talks. There are some serious issues in that sandpit.

Naturally, everyone is saying they want the government to reopen, but while it remains closed, markets still seem fairly relaxed. There are no signs of panic, no signs of really much concern at all still, although equities did finish the session lower.

In the US, stocks were led down by basic materials, consumer services and healthcare – telecommunications the only main sector finding a bid. The major indices themselves were down 0.5 per cent, or thereabouts, with 30 minutes left to trade. That’s only slightly worse than what we saw in Europe – Dax off 0.4 per cent, FTSE100 down 0.3 per cent, although the CaC was flat. The damage to date from the shutdown is US stocks off about 2.5 per cent.

Elsewhere, US treasury yields have done little, and actually fell a bit overnight – only a basis point or so, to 2.63 per cent – and shorter dated yields have done nothing. No safe haven bid evident in gold either, although for last night gold did rise about $13 to $1322. Copper was otherwise down 0.2 per cent while crude also fell, 0.7 per cent to $103.12.

That was literally it for what was in fact a boring session – the Australian dollar is little changed at 0.9433, same with the euro at 1.3578, while the yen is a bit stronger at 96.86 from 97.147 on Friday. Outside of the price action and the shutdown there was a bit of interesting news flow, and in particular we saw US consumer credit growth remain very strong in August, rising $13.6 billion in that month. That’s a great sign US consumers are back and spending and borrowing.

For the day ahead, the SPI suggests Australian stocks will fall about 0.4 per cent, while the key data is National Australia Bank's business survey (1130 AEST). As discussed yesterday, I think this is the key release for the week, more important even than the unemployment figures on Thursday. This country has (or had) a confidence crisis – that’s it. If confidence can lift, jobs growth will accelerate. On that front, ANZ’s job ads figures are also released at 1130 AEST.

Outside of that we see a Chinese services PMI at 1245 AEST, then tonight we see German trade figures, factory orders and for the US the trade balance and the NFIB small business optimism index. There are a couple of Fed speakers – Charles Plosser and Sandra Pianalto are probably worth watching, although a taper is off the table for now.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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