Good morning, hope you had a good weekend. Bulls fought a bit harder than expected last thing Friday (and stopped out my risky short, which seems it was just a bit early) but since the close the bears have come back and the overnight action is distinctly bearish, with the S&P dropping back to 1679 and the FTSE at 6430 as I write this. This is due to the Chinese GDP downgrade by the World Bank, to 7.5% from 8.3%. The focus will really move onto the debt ceiling in the US now and the failure to sort out the current standoff is likely to weigh heavily on indices. Today main UK news will be the Royal Mail flotation which looks like it will go well judging by demand for the shares at listing, today and tomorrow are the last days to apply. Will it do a Facebook though?
Asia Overnight from Bloomberg
Asian stocks fell, with the regional benchmark index extending last week’s drop, as U.S. lawmakers wrangle over the debt limit and partial government shutdown.
The MSCI Asia Pacific Index fell 0.9 percent to 137.91 as of 1:53 p.m. in Tokyo, with all but one of its 10 industry groups dropping. The gauge lost 1.2 percent last week, the first weekly drop in more than a month, as the partial U.S. government shutdown stoked concern lawmakers won’t be able to agree on raising the nation’s $16.7 trillion borrowing limit later this month.
“The U.S. situation is clearly abnormal and the uncertainty doesn’t make things easier for investors in risk assets,” said Masaru Hamasaki, a senior strategist at Tokyo-based Sumitomo Mitsui Asset Management Co., which oversees about 11.2 trillion yen ($115 billion) in assets. “If the U.S. defaults and misses paying its bills even just for a few days, the market will turn chaotic.”
U.S. Speaker John Boehner said yesterday the House can’t pass an increase to the debt ceiling without packaging it with other provisions — a nonstarter for President Barack Obama.
US Futures
Futures on the Standard & Poor’s 500 Index slumped 0.6 percent today. The gauge dropped for a second week last week as the first partial government shutdown in 17 years began.
Default Risk
Treasury Secretary Jacob J. Lew said Congress needs to pass a debt-ceiling increase by Oct. 17 or the U.S. will be “dangerously low” on cash and risk defaulting on its payments. Federal Reserve Bank of San Francisco President John Williams estimated a two-week government halt would shave 0.25 percentage point off fourth-quarter economic growth.
The shutdown delayed the release of the Labor Department’s monthly payrolls report, which was due Oct. 4.
“Markets need to be aware that the impasse on Capitol Hill is far from being resolved,” Evan Lucas, Melbourne-based market strategist at IG Ltd. said in a note today. “The shutdown stalemate continues to ebb and flow and is disruptive.”
FTSE Outlook
There is no denying that the debt ceiling issue is going to weigh heavily on markets up to the 17th October, and the bottom line is that a default will be very bad news, with global repercussions. Therefore I would like to assume that for all the posturing and bluster and back room deals, an 11th hour deal will be done as is usually the case in these situations. In an ideal world of course, they might actually look to pay down the debt rather than add to it but hey ho, max that credit card! The Bianca channels have support at 6390 on the 20 day and I feel that this is a fairly key area. If this breaks then we will get that 6200 I mentioned a while back, possibly even 6100 or lower. The daily trends are also firmly down at the moment, and the bulls will need to break 6635 to break that trend (top of the Bianca 50 day channel). If bulls can get prices above 6456 today (top of the 10 day) then 6475 is likely, however it looks weak at the moment pre market with the China downgrade. Both the 10 day and 50 day Bianca channels are around the 6360 area so if that’s seen today then its likely to offer fairly good support as the swing traders come in. to start with it all looks weak though, much like the Dax, with bearish EMAs and coral on the 30 minute. Initial trend is therefore down, however, Monday morning opens can be choppy and there is a possibility of a gap close (where the price tries to get to Fridays closing level).