1.Twin concerns have yen on the rise. Japanese markets show their disappointment to PM Abe’s remarks on measures to reduce the tax burden on the corporate sector – Nikkei closes in the "red." The yen is also being supported by the growing negative sentiment from investors on the U.S. political gridlock. BoJ meets tomorrow.
2.ECB rates remain on hold (+0.75%). Draghi repeated himself – interest rates will stay “low for longer,” risks to growth are “on the downside.” Policy makers are ready to use “all available instruments to them” (another LTRO?) and inflation is “broadly balanced.” During this morning press conference he would not comment on the EUR’s value except to say that the exchange rate was not a policy objective. EUR has been given the green light to trade higher.
3.September’s U.S. ADP jobs data (ex-agriculture and government) missed expectations (+166k vs. +170k) and August’s gains were revised lower (to +159k from +176k). – This release gains added significance this week as the shutdown may likely prevent the release of last month’s BLS reports, including the NFP, previously scheduled for this Friday Oct 4th.
4.ISM-NY current business conditions index fell to 53.6 last month from 60.5 the previous month. Purchasing managers reported declining revenues for the first time in 12-months and reported being less upbeat about the future. The jobs component stalled following a two-year high (50.2 vs. 59.8).
5.U.S. Treasuries have advanced, pushing 10-year note yields (2.60%) toward a two-month low, after U.S. reports showed companies in the U.S. added fewer jobs than forecasted last month. U.S. debt has remained better supported on pullbacks as the partial shutdown of the U.S. government showed no signs of ending quickly. Italian debt also has found market favor after Prime Minister Letta survived a confidence vote.
6.The growing fear that the U.S. political impasse will go on for longer than investors had originally anticipated has U.S. stock futures “piling on the losses” today. The market is increasingly worried about the political dispute over the budget and the potential impact on debt-ceiling negotiations.
7.The longer the shutdown then debt rating agencies become an issue - the U.S. debt ceiling is not itself a downgrade trigger, but a formal ratings review with potentially negative implications would be triggered if the government does not raise debt ceiling in a timely manner – The U.S. Treasury Department has said its ability to borrow will end on about Oct. 17.
8.After yesterday’s flush out, gold and commodities have rebounded nicely from a two-month low on speculation that the Ben and company will be needing to delay reducing its stimulus program during the first U.S. government shutdown in 17-years (+$32 to $1,320). Some investors are looking at the ‘yellow metal’ as a store-of-value, especially now that the greenback is trading on the back foot against G10 currencies. The longs can breathe a sigh of relief for now.
9.House Republicans are expected to try again later today to pass “three piecemeal spending bills” that would reopen parts of the government. The market is waiting for one side to blink and this may not happen until after U.S. government has taken a day or two of not paying some bills — which would be considered a technical default.
10.In three months GBP has risen 10% – rallying from its lows to this year's high this week (1.6260). The market is somewhat confused by its strength. Everyone believing in a less dovish Fed and a stronger U.S. economy would be leaning towards a pro-dollar. However, strong data continues to support Sterling. Growth could hit 1% in Q3 or 4% annualized – this has led to rising gilt yields. There is skepticism about the BoE Carney’s “forward rate guidance.” With GBP’s value markets will find it difficult to be pricing in any rate hikes any time soon. The BoE meets next week.