18.10.13 Friday Morning

After weeks of political wrangling and stalemates, U.S. politicians have finally agreed on a deal that has seen the Federal government re-open, with public attractions and government funded buildings being made accessible to the public once again. Additionally, the debt ceiling has been raised without the Democrats needing to make concessions regarding the Obamacare law. Final Senate & House voting overwhelmingly supported the latest deal put on the table by policymakers: 81-18 & 285-144 respectively.
The budget has been extended to January 15th whilst the debt ceiling will need to be reassessed come February 7th, effectively kicking the can down the road. Many investors have raised concerns that these very same issues that have cast a dark cloud over the markets in the last few weeks will arise again come the dates mentioned.
Despite hundreds of thousands of government employees returning to work, it may take weeks or even months before the government resumes issuing loans, payments and contracts at a normal pace.
On top of this, the numerous bills that will be paid late will incur additional interest costs, whilst expenses will be raised further to deal with the backlog of work resulting from the shutdown. Early estimates place these costs in the billions. The 16-day halt in operations has shaved at least 0.6% from Q4 2013 GDP, taking $24bn out of the U.S. economy according to Standard and Poor.
Whilst the Republicans have certainly lost on this occasion, John Boehner has been credited with fighting a good fight, receiving a standing ovation for pursuing every alternative in a private meeting at Congress. The speaker will now have to re-unite Republicans divided in the fight over Obamacare and stake out winning strategies for the future.
Despite agreeing a temporary fix on Wednesday to keep the government running until January and raise the national debt ceiling, U.S. politicians have been embarrassed on the global stage with some suggesting that this may not just be a temporary setback.
Foreign governments and investors, from China to the Middle East, were bound to ask whether they should hold so much of their reserves in U.S. Treasury bonds and dollars. The president acknowledged on Thursday that the 16-day shutdown had hurt Washington's global position.
The global economy, since recovering from the U.S. debt ceiling ordeal, has gone from strength-to-strength with Asian markets receiving a boost after China’s gross domestic product expanded 7.8 percent last quarter. So far this year investment has accounted for more than half of the expansion, showing the challenges faced by Beijing in trying to restructure the economy towards consumption, which policymakers expect to provide more sustainable growth in the years ahead. Consequently, the MSCI Asia Pacific Index has been pushed to a five-month high.
Going into next week, investors will keep an keen eye on how the Obama administration react to the adversity faced on the global stage with Obama admitting that the U.S. must stop playing pressure politics. Meanwhile, Federal Reserve Bank of Chicago President Charles Evans said yesterday the U.S. shouldn’t reduce stimulus after some reports stopped during the government shutdown. Tapering has of course been high on the agenda for quite some time now and will be scrutinised more intensely as debt default talk resides.

Stock of the Week: Rio Tinto
RIO TINTO has upgraded its mineral production targets as the commodity market continues to stabilise. Trading 7.05% higher from the week open on the improved copper & iron production outlook announced in this week’s third-quarter production update. The improved commodity market prices bode well, given the production ramp-up.

Next Week’s Notable Economic Data/Events

Monday –

• USD – Existing Homes Sales @ 15:00

Tuesday –

• USD – Non-farm Employment Change @ 13:30
• USD – Unemployment Rate @ 13:30

Wednesday –

• AUD – CPI q/q @ 01:30
• GBP – MPC Asset Purchase Facility Votes @ 09:30
• GBP – MPC Official Bank Rate Votes @ 09:30

Thursday –

• CNY – HSBC Flash Manufacturing PMI @ 02:45
• EUR – French Flash Manufacturing  PMI @ 08:00
• EUR – German Flash Manufacturing PMI @ 08:30
• USD – Unemployment Claims @ 13:30
• USD – New Home Sales @ 15:00
• GBP – BOE Gov Carney Speaks @ 17:45

Friday –

• EUR – German Ifo Business Climate @ 09:00
• GBP – Prelim GDP q/q @ 09:30
• USD – Core Durable Goods Orders m/m @ 13:30

 

Next Week’s Notable UK Earnings

Monday –

• Senior Interim Management Statement

Tuesday –

• Reckitt Benckiser Q3 23012 Interim Management Statement
• ARM Holdings Q3 Earnings Release
• UBM Interim Management Statement for 9 months ended 30^th Sep

Wednesday –

• British American Tobacco Interim Management Statement for the 9 months ended 30^th Sep
• International Personal Finance Q3 2012 Earnings Release
• GlaxSmithKline Q3 2012 Earnings Release

Thursday –

• Debenhams Full Year 2012/13 Earnings Release