The US debt and budget impasse remains just as confused this morning, as it was a week ago and those signs late in the week of progress in resolving them seem to have gone for the moment.
For that reason, the head of steam building up in markets on hopes of a resolution early this week could very well fade while we wait for more concrete progress from Washington.
The budget shutdown is approaching its 14th day tonight, our time.
A trio of senior bankers warned over the weekend of the dangers to the global economy and financial system and China again told the Americans to get their house in order, quickly.
And the head of the IMF, Christine Lagarde warned the global economy could be tipped into a recession by a failure to lift the debt ceiling.
Markets here though will also have to assess the flow of economic data from China.
Inflation figures for September and the quarter out later today after data on the weekend showed a surprise slide in exports, but a rise in imports, including a record amount of iron ore – the most important of all China’s imports for Australia.
Our market was poised to open strongly – up more than 30 points according to share price futures – but the news from China and from Washington might cause a rethink.
Wall Street finished Friday and the week with reasonable gains and the Aussie dollar ended well above 94.60 US cents.
But gold and oil were lower over the week.
Much of the US is closed tonight for a public holiday – but thankfully markets will be trading so that will allow any progress (or the lack of) will be reflected in investor sentiment.
At the weekend, Republicans again tried to get a conditional six week extension in the debt ceiling – but President Obama rejected, that saying he will only talk without conditions.
Attempts were also made by Senate Republicans to get a separate deal with the Administration – avoiding the Republicans in the House of Representatives.
That attempt seems to have failed as well.
An attempt by Senate Democrats to lift the debt ceiling also failed because the proposal couldn’t get the 60 votes needed to pass (in the 100 person chamber).
The head of the European Central Bank, Mario Draghi warned of the dire consequences for the rest of the world if the US doesn’t renew its debt ceiling.
And three of the world’s leading bankers underlined seriousness of the debt ceiling impasse when they warned at the weekend about the dangers.
According to Reuters, Deutsche Bank CEO, Anshu Jain said default would be "utterly catastrophic." "This would be a very rapidly spreading, fatal disease," Jain said on Saturday at a conference hosted by the Institute of International Finance in Washington.
"I have no recommendations for this audience…about putting band aids on a gaping wound," he said.
Jain, JPMorgan Chase chief executive Jamie Dimon and Baudouin Prot, chairman of BNP Paribas, said a default would have dramatic consequences on the value of US debt and the dollar, and likely would plunge the world into another recession, Reuters reported.
In New York, the Dow was up 111 points, or 0.7%, at 15,237.11 at the close early Saturday, our time. The Standard & Poor’s 500 Index was up 10.63 points, or 0.6%, at 1703.19. The Nasdaq Composite Index was up 31.13 points, or 0.8%, at 3791.87.
For the week, the Dow rose 1.1%, the S&P 500 rose 0.7% while the Nasdaq fell 0.4% as some of the strongest performers in the tech sector sold off during week as investors were taking profits. Many of these tech giants (Google, eBay, Intel) are due to report quarterly earnings this week.
Comex gold for December delivery slid $US28.70, or 2.2%, to settle at $US1,268.20 an ounce, a three month low as settlement talk in the debt ceiling brawl did the precious metal no favours.
That fall helped push gold’s loss for the week out to 3.2%.
Nymex November crude oil futures fell 99 cents to end at $US102.02 a barrel. For the week, the contract fell by around 1.5% as US oil production continued to rise and the country was overtaken by China as the world’s biggest importer.
In Australia, the ASX 200 closed about 1.6% higher at 5230.9 points on Friday, one of its best-performing days in months. The All Ordinaries rose 1.6% to close at 5228.8.
That strong rise pushed the ASX 200 up by half a per cent over the week.
Leighton rose 6.2% over the week, CSL. 1.4%, Wesfarmers, 1.1% and the Bank of Queensland added 5% to end on a three year high of $11.10 after reporting a convincing return to profitability.
