04.10.13 Friday Morning

With Republicans and Democrats failing to make concessions so far, the budget debate has been the subject of intense scrutiny by economists and investors alike. Despite expectations that a solution would be swiftly found, politicians are still negotiating a deal to re-open the federal government. Whilst essential operations have continued, some 800,000 government jobs have been placed on temporary unpaid leave.

As the trading week edges towards the close, investors still find themselves desperately seeking clarification. The two main political parties are struggling to find common ground with the House Republicans wanting to delay President Barack Obama’s Affordable Care Act for a year and make other changes to the health law. Democrats vow not to let that happen. Consequently, there will be no Non-Farm payrolls data released this afternoon.

Several factions within the Republican Party have been well documented with one group composed of anti-tax hard-liners wanting to use the debt ceiling as leverage to gain concessions from President Barack Obama. Others want to take a more conciliatory stance and are urging  John A. Boehner to allow the government to re-open and drop demands related to the Affordable Care Act. It’s not clear what the largest group, consisting of 100 or so Republicans not clearly aligned with either side, will support.

U.S stock-index futures have consequently slid with the S&P 500 down 1.18 percent in the last 5 days, however, the index is still trading 2.37 percent higher this month, extending its quarterly gain to 5.3 percent after the Federal Reserve decided against reducing its $85 billion of bond-buying a month. The general consensus amongst economists surveyed is that the Fed will indeed taper bond-buying to some degree in December.

Meanwhile, the FTSE 100 has been led lower by a combination of political unrest in Italy and further worrying data from China. Mining shares have weighed on the headline index after data from China unexpectedly showed near stagnation of private sector factory activity in September. The mining sector is the indices' third-biggest and the only one that is down this year. Additionally the mining sector is down some 2 percent this week.

Silvio Berlusconi earlier this week promised to topple the Italian government by withdrawing his party’s support, prompting a senate vote. But he backed down when it became clear that several of his senators would back the government. Italian Prime Minister Enrico Letta had earlier said that if he were defeated in the vote, it might prove a "fatal risk" for Italy. In the event he won easily: the Senate voted 235 to 70 in favour of the government.

Looking ahead, investors' main focus will be the U.S. government’s attempts to avoid a default. Significantly, House Speaker Boehner has privately told Republican lawmakers anxious about a fallout from the government shutdown that he would not allow a potentially crippling federal default as the atmosphere on Capitol Hill turned increasingly tense on Thursday.

Stock of the week – Tesco

The UK’s biggest supermarket chain reported a 23.5 percent drop in profits during the first half of its financial year on Wednesday. The drop in profits was blamed on a challenging retail environment, particularly in Europe.

 Weekly Earnings:

 

Monday

-          Quadrise Fuels International – Earnings Release

 

Tuesday

-          Victrex – Trading Update

-          Robert Walters – Interim Management Statement

 

Wednesday

-          Vedanta Resources – Production Release

-          HgCapital Trust – Interim Management Statement

-          N Brown Group – Earnings Release

 

Thursday

-          Ashmore Group – Interim Management Statement

-          WH Smith – Earnings Release

-          Hays – Interim Management statement

 

Economic data:

 

Tuesday

-          EUR German Trade Balance

-          CHF CPI

-          USD Trade Balance

 

Wednesday

-          GBP Manufacturing Production

-          FOMC Meeting Minutes

-          ECB Draghi Speaking

 

Thursday

-          AUD Employment change

-          EUR French Industrial Production

-          GBP Asset Purchase Facility

-          USD Unemployment Claims

-          EUR ECB Draghi Speaks

 

Friday

-          USD Core Retail Sales

-          USD Prelim UoM Consumer Sentiment