Little impact from US shutdown
Global equity markets offered something of a muted response today after the partial shutdown of the US government. Investors were clinging to the view that overall damage will be minimal, and that a political resolution will be swift. Many grasped the opportunity, since the congressional capers and the potentially negative effects on the health of the US economy are not exactly conducive to tapering of quantitative easing.
European investors had more than enough data to watch on this side of the pond. The most startling of today's releases was the German unemployment number. The consensus was for a decline of 5000 in the previous month, but the actual number showed an additional 25,000 people were out of work in August. Manufacturing PMI for the entire eurozone came in as expected at 51.1, but overall data for individual countries was lower than expected. Ireland, set to exit its bailout programme at the end of the year, left weaker countries in its wake with manufacturing output rising at the fastest pace since July 2012.
The tumble in metals prices, both precious and base, has seen Fresnillo take the bottom spot on the FTSE 100. Shedding 4.78% today, the share price has declined almost 30% in the past month.
Investors are optimistic that easyJet will announce some pleasing profits imminently. The airline announced two new routes and added 3.29% to its share price.
US markets rebound
The Dow has made a brave attempt to claw back some of the triple-digit losses from yesterday, bolstered by better-than-expected ISM manufacturing data. It remains to be seen if the stock rebound in early trade from the multi-week lows is anything but temporary. The complacency in both bond and equity markets, in light of heightened volatility in the so-called ‘fear index’, suggests that traders feel well enough hedged to deal with any potential negative scenario.
Given how imperative jobs data is to the US recovery, and indeed to monetary policy, the fact that we may not see the non-farm payrolls released as usual this Friday could sway equity markets either way.
The Dow is now up 55 points at 15,194.
Sterling shows strength
The British pound has become rather attached to its upward trajectory, and now looks set to add a fifth consecutive week of gains against the US dollar. Manufacturing growth for the UK slipped back from the two-and-a-half-year highs registered last month. Traders focused on the fact that the employment segment of the index rose at its fastest rate in two years. One could expect sterling to make an attempt at the $1.63 area now – a level not seen since late December last year.
The Australian dollar has also garnered some gains against the dollar, following the decision by the Reserve Bank of Australia to keep rates on hold at this juncture. The language emanating from the bank had an altogether less dovish tone, so one can expect that as long as Chinese data continues to impress, any rate-cut potential is likely to remain elusive.
Safe-haven gold fails to benefit
Dollar weakness was already in situ before the news that the government would partially shut down. And while the added uncertainty this morning pushed the dollar index below the 80 metric, the perceived safe haven of gold has not exactly benefitted. Its failure to break higher through $1350, and its subsequent fall through the $1300/oz level today, make $1270 a key support level. The potential extra liquidity that a European long-term refinancing operation (LTRO) would bring was also put on the back burner today, as it becomes clear that additional bank stress-tests will be necessary.