Markets in Asia, Australia, Europe and the US took a hammering yesterday and overnight as the US budget crisis headed towards forcing the US government to shut down much of its operations from later today, our time.
At the same time, a surprise weaker than forecast final reading in the HSBC Markit survey of Chinese manufacturing hurt sentiment, while the latest bout of political instability in Italy worried European investors and forced up yields on Italian government bonds.
As a result all markets fell yesterday, but for the quarter, many were up sharply, with Australia’s near 9% gain a stand out.
While the Dow fell 0.8% overnight, it was up 1.5%, the S&P 500 eased 0.6% overnight, but rose 4.7% and the Nasdaq dipped by around 0.4%, but jumped by close to 11%.
The situation in the US will hit the fan around the time the Reserve Bank board is voting on whether to move interest rates.
No change in rates is expected, but watch for what the Governor, Glenn Stevens says about the value of the dollar and property in his post meeting statement at 2.30 pm.
Gold prices lost nearly 1% (or $US12 an ounce) overnight, and the rise in gold shares in Australia yesterday seems to have been an example of misplaced faith. Oil also weakened yesterday.
But gold ended the quarter with a gain of 8.4%, the first for a year. But it also lost around 5% for the quarter, so that quarterly gain didn’t look so good.
Oil prices fell 4.9% for September, but added 6% for the quarter.
The Aussie dollar ended just around 93 US cents.
Seeing the dollar started September at 90 US cents, it is up more than 2% for the month.
It ended the June quarter around 92.75 US cents, so not much movement, especially downwards.
US bonds yields also eased further as investors socked away money in the event of the budget problem developing into a bigger problem.
But US analysts says the budget problem, which will come to a head between now and 2pm and then continue until a bill passes through both houses of the US Congress (called a continuing resolution) that restores funding and allows the government to reopen.
But that is merely an opener to the budget ceiling crisis from around October 17- that is looking even harder to resolve.
Our market lost just on 1.6% yesterday, to trim the quarter’s gains from 10.5% to just on 9%. Other markets in Asia were also easier, especially Japan where a surprise easing in industrial production and retail sales hurt confidence.
The situation in the US will be confused and after the steep losses on Wall Street overnight, our market will have a rough opening today because of the uncertainty.
The most immediate damage will be to market levels and then confidence.
We can ignore any suggestion of the Fed cutting back on its tapering – it will want its $US85 billion a month in purchases to cushion the impact of this silly political stand off created by the tea party Republicans.
For the moment, credit rating agencies are relaxed, with Standard & Poor’s said in a statement that the debate over the raising the US debt limit is unlikely to change the sovereign rating as long as it is short-lived. S&P currently rates U.S. credit at AA+ with a stable outlook.
"In our opinion, the current impasse over the continuing resolution and the debt ceiling creates an atmosphere of uncertainty that could affect confidence, investment, and hiring in the U.S. However, as long as it is short-lived, we do not anticipate the impasse to lead to a change in the sovereign rating," the group said.
For markets, an unwelcome complication was the surprise weaker than forecast reading on Chinese manufacturing.
The final HSBC/Markit Purchasing Managers’ Index (PMI) edged up to 50.2 in September from August’s 50.1. That was noticeably lower than last week’s flash reading of 51.2, with domestic orders proving to be weaker than preliminary estimates suggested.
But new export orders picked, climbing sharply to top the 50-point mark separating expansion from contraction to 50.7, from 47.2 in August. After seasonal adjustments, however, the expansion was slight, according to commentary from HSBC.
There is a further survey of Chinese manufacturing out later today from the Government. But it will be overshadowed by the imbroglio in Washington. Other start of month surveys of manufacturing and business are out later today. The impact of the situation in Washington will dampen their impact.
