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The major U.S. index futures are pointing to a lower opening on Monday, with sentiment reflecting nervousness among traders as the debt ceiling deadline draws closer. Despite both parties suggesting that they earnestly wish to avert a crisis, no concrete agreement appears forthcoming, as they are still at loggerheads over a unanimous solution. Corporate news flow of the day is light and there are very little Main Street catalysts to render direction to the markets. Global cues aren’t encouraging either. Trading direction of the day largely depends on the news emerging from Washington on the re-opening of the federal government and the debt ceiling.
U.S. stocks closed mixed in the week ended October 11th, as traders reacted to signals arising from Washington regarding progress towards an agreement to end the uncertainty surrounding the raising of the U.S. debt ceiling. Last Monday, the major averages declined notably amid the lack of a resolution to the budgetary impasse. The negative mood surrounding the fiscal crises intensified on Tuesday, sending stocks notably lower.
On Wednesday, the negative sentiment generated by political inaction on the budget and debt ceiling was offset by positive earnings reported by Alcoa and news of Janet Yellen being nominated for the Fed Chair post. The averages closed on a mixed note. With lawmakers showing some inclination to agree on a temporary increase of the debt ceiling on Thursday, the major averages jumped over 2 percent each. Hopes of a deal continued to support the markets on Friday, with the averages advancing moderately in the session.
For the week ended October 11th, the Dow Industrials ended up 1.07 and the S&P 500 Index closed 0.75 percent higher, while the Nasdaq Composite slid 0.42 percent.
The Dow Jones Utility Average and the NYSE Arca Securities Broker/Dealer Index advanced 2.43 percent and 1.06 percent, respectively for the week. The KBW Bank Index added close to 1 percent. Meanwhile, the NYSE Arca Gold Bugs Index and the NYSE Arca Biotechnology Index fell 4.28 percent and 5.20 percent, respectively.
The Dow Industrials managed to carve out decent gains last Friday as deal hopes stayed afloat, and in the process it climbed above its 50-day MA currently at 15,187 and 100-day MA currently at 15,213. These two levels may now serve as supports. Outside of these levels, the index may also have support around 15,120, 14,990, 14,902 and the 200-day MA currently at 14,749. On the upside, the index has resistance around its 21-day MA currently at 15,246 as well as the 15,320 and 15,385 levels.
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Manufacturing, housing and Fed speeches are set to predominate proceedings in the unfolding week. With the government shutdown continuing, some of the data, especially from the Commerce Department, is unlikely to be released.
Traders are likely to closely watch the results of the manufacturing surveys for October by the New York and the Philadelphia Federal Reserve Banks, the Federal Reserve’s industrial production report for September and Beige Book, the weekly jobless claims report and a host of Fed speeches, including one from Federal Reserve President Ben Bernanke. The National Association of Home Builders’ housing market index for October and the Conference Board’s leading economic indicators index for September round up the economic events of the week.
Federal Reserve Chairman Ben Bernanke is scheduled to speak to a Bank of Mexico conference in Mexico City at 8 pm ET.
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Netflix is reportedly in talks with several U.S. cable television providers to make its online video service available as an app on their set-top boxes. A Wall Street Journal report suggested that the company in early-stage talks with cable operators such as Comcast and Suddenlink Communications, as it looks to strike a deal similar to its recently-announced deal with UK cable operator Virgin Media.
Jamba announced the resignation of its COO Brude Schroder.
Scotts Miracle-Gro has inked a deal with Bell Labs to acquire the Tomcat consumer rodent control business for undisclosed terms. The transaction includes the Tomcat brand, and a long-term partnership to bring innovative technologies to the consumer rodent control market.
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US debt ceiling weighs on market
US debt ceiling concerns continued to cast a dark shadow over markets on Monday as the government came no closer to a deal.
The US is three days away from reaching its $16.7trn borrowing limit after which the government will start to run out of money to pay its bills and risk a default on its debt.
Lawmakers continued to butt heads after the Democrats rejected a number of GOP offers over the weekend on the debt ceiling.
Senate Majority Leader Harry Reid said he held productive talks with Republican leader Mitch McConnell but they failed to reach a plan.
“Although many dismiss it as unlikely with hopes that US lawmakers will strike an 11th hour deal, traders are showing reluctance to take risk as we head into the deadline on October 17th,” said Ishaq Siddiqi, Market Strategist at ETX Capital. “Having said that though, we are in the third [sic] week of the US government shutdown which is eating away at US Q4 growth. At a time when the economic recovery in the states is fragile, an erosion of economic growth is highly undesirable – the silver lining however is that the Federal Reserve will not taper asset purchases with this in the backdrop.”
The government has been in a partial shutdown since October 1st after missing its deadline to agree on a federal budget. The Senate and House will meet in Washington on Monday, even though it is the Columbus Day federal holiday.
ECB tightens rein on banks
European Central Bank Executive Board member Benoit Coeure said there will be three different checks on the balance sheets of European banks to ensure credibility.
The ECB will be taking over regulation of Europe’s lenders to avoid another banking crisis sparked by sovereign debt.
“The way we will do it next year will be very different from the way that the previous two stress tests were done,” Coeure said at an event in Washington yesterday.
“Any number provided by the banks will first be checked by the national supervisor, then there will be a second check at the European level, in Frankfurt. And then there will be a third check by independent auditors.”
Merkel faces challenging coalition talks
Chancellor Angela Merkel faces a difficult challenge this week to form a government as prospective coalition partners start making demands.
The Social Democrats party has commanded a nationwide minimum wage of €8.50 ($11.51) an hour while the Greens party is casting doubts on negotiations with Merkel’s Christian Democratic party. “It’s clear above all that there won’t be a government with the SPD” without an obligatory minimum wage, SPD General-Secretary Andrea Nahles told Bild am Sonntag in an interview yesterday. “Our members won’t accept anything else.”
Merkel is trying to form a coalition after failing to secure enough votes to win the election last month.
RBS mortgage applications rise on Help to Buy
Royal Bank of Scotland slumped despite saying yesterday that it had booked up 5,000 mortgage appointments with customers within just three hours of the Help to Buy scheme going live last week. The stock was downgraded this morning by Bank of America to 'underperform'.
Konecranes Oyj declined as the Finnish maker of lifting equipment forecast that 2013 sales will be “slightly lower” than last year.
PSA Peugeot Citroen plunged following a report it plans to sell new shares.
UK platinum refiner Johnson Matthey rose after JPMorgan upgraded the shares to ‘overweight’ from ‘neutral’.
Electricite de France advanced as Energy Secretary Ed Davey said the UK was close to announcing a deal to build a nuclear power plant.
Chinese exports fell in September by 0.3% from a year earlier, against expectations of a 6% rise, data showed on Saturday. Inflation in China jumped to a seven-month high of 3.1% last month as poor weather drove up food prices, another report revealed.
Brent crude slips
Brent crude futures fell $0.797 to $110.400 per barrel on the ICE. The euro rose 0.10% to $1.3558.
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The Asian markets that were open for trading closed mostly lower, as the lack of a deal in Washington worried the markets. The Australian, New Zealand, Singaporean, South Korean and Taiwanese markets retreated, while the Chinese market advanced. The Japanese, Hong Kong and Indonesian markets were closed for a public holiday.
Australia’s All Ordinaries opened unchanged but declined sharply in early trading. Subsequently, the index moved steadily lower until the mid-session before regaining some ground in the afternoon and closing down 22.30 points or 0.43 percent at 5,207.
China’s Shanghai Composite Index closed 4.58 points or 0.21 percent higher at 2,233, as traders digested reports on trade balance and consumer prices.
A report released by the Chinese National Bureau of Statistics showed that consumer prices rose 3.1 percent year-over-year in September, faster than the 2.6 percent increase in August and representing a 7-month high. Economists expected a more modest 2.6 percent increase in consumer prices. At the same time, producer prices fell by 1.3 percent year-over-year compared to a 1.6 percent drop in August.
A separate report showed that China’s trade surplus fell notably to $15.21 billion in September from the $28.5 billion surplus reported for August. Economists expected a surplus of $26.25 billion for the month. Exports edged down 0.3 percent year-over-year, while imports rose 7.4 percent.
The total number of housing loans availed in Australia fell 3.9 percent month-over-month in August, according to a report revealed by the Australian Bureau of Statistics. Economists expected a more modest 2.5 percent drop.
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Crude oil futures are slipping $0.25 to $101.77 a barrel after declining $1.82 or 1.75 percent to $102.02 a barrel in the week ended October 11th.
Last Monday, oil fell moderately amid the risk aversion in play in the markets. The commodity managed to reclaim some of its losses on Tuesday by virtue of its modest rebound.
Oil declined by close to $2-a-barrel on Wednesday only to rebound by close to $1.50-a-barrel on Thursday amid deal hopes. The commodity fell by about $1-a-barrel on Friday, ending the week lower.
Gold futures, which fell $41.70 or 3.18 percent to $1,268.20 an ounce last week, are currently climbing $17.29 to $1,285.40 an ounce.
The U.S. dollar firmed up against both the yen and the euro in the week ended October 11th. The greenback added 1.13 percent against the yen before ending the week at 98.58 yen. At the same time, the dollar ended the week slightly higher against the euro at $1.3544, up 0.10 percent for the week.
The U.S. dollar is currently at 98.15 yen and is valued at $1.3590 versus the euro.
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