The delay in resolving this issue is on everyone’s minds, though whether we will see this stand-off resurface again is a question splitting the market. The pessimistic view is that this drama has been revisited again. I’m more inclined to go with the argument that both political parties have learnt from this fiasco and will start putting aside their differences and start working on a compromise before the next deadline in December, preventing this from occurring again.
President Obama is correct in pointing out that “there are no winners here”. His description is not just limited to the political parties; Americans have been devastated by the shutdown. The labour department showed more Americans filed for unemployment benefits and the four-week moving average showed an uptick to 336.5k from the previous week’s revised average of 324k.
The Bloomberg Consumer Comfort Index showed confidence in the economy dropped to minus 31 from minus 9 the previous month. This does not bode well coming into the holiday season, when retailers gear up to capture the most of the shopping season. Manufacturing in Philadelphia showed a dip to 19.8 this month from a two-year high of 22.3 in September. The underlying demand for household goods and automobiles is keeping the expansion momentum going.
Emerging Asian equities & currencies
The major pullback that investors were looking for never happened, especially in the Asian equity markets. This explains the muted response after the deal was announced yesterday. Foreign institutional investors continue to pour into emerging Asian equities with net inflows led by South Korea at $699m, followed by Taiwan at $475m, India at $123m (week ending 14 October), Thailand at $59m, and the Philippines at $11m for the week ending 16 October.
This week’s best performing Asian currency is the ringgit with a 1.4% gain against the dollar, followed by the rupiah and the rupee. The rupiah’s turnaround has been a surprise; a close below 11,000 will be more convincing of a trend reversal.
China’s GDP and retail sales numbers will be the focus of the markets, with the dearth of economic releases. Market participants have protected themselves by taking some money off the table ahead of this release, on concerns the upcoming plenary session in November would see deepening government reforms, as the country faces complicated economic and social challenges, such as corruption and the environment.
The consensus for Q3 GDP averages at 7.8% on the economy stabilising after the second half, with the introduction of mini stimulus measures where the manufacturing sector changed from a contraction to an expansion mode. Despite the projection of slowing growth next year of 7% following the FDI, data shows investors’ long term view of China with investments increasing from the US by 21%, from the EU by 23% and from Japan by 6% for the period January to September.
Meanwhile, investments from Asian countries were down 5% year on year. This can be attributed to the positives before the shutdown, with a synchronised global landscape with growth in the eurozone, Japan and the US. The projection for next year is brighter.
Key Asian events next week include Taiwan exports on 21 October, the Philippines Central Bank decision on 24 October, and South Korea GDP on 25 October.