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The major U.S. index futures are pointing to a lower opening on Monday, with sentiment reflecting fears of traders over the impact the ongoing budgetary impasse can have on the upcoming debt ceiling issue and the broader economic growth. Most other catalysts are likely to pale in significance before the political crisis. The government shutdown is expected to delay the release of some key economic reports, which otherwise would have rendered clarity to the economic outlook. The earnings season would unofficially kickstart tomorrow with the release of Alcoa’s quarterly scorecard and it remains to be seen if it could serve to alleviate anxieties.
U.S. stocks went about in a volatile manner in the week ended October 4th, as traders digested the U.S. government shutdown while also remaining concerned about the debt-ceiling deadline. A few key economic reports, including the monthly non-farm payrolls report, were delayed due to the government shutdown.
Last Monday, the major averages ended notably lower amid fears that the U.S. government was heading toward a shutdown due to the lack of agreement among lawmakers on a budget deal. However, the markets showed surprising resilience in the wake of the shutdown on Tuesday, apparently due to the fact that the markets already digested the risk event. The averages ended notably higher for the session.
With the shutdown entering the second day and the private payroll numbers for September disappointing to the downside, the major averages declined on Wednesday. The averages moved to the downside yet again on Thursday as the government remained shutdown. However, the averages rebounded on Friday amid some bargain hunting after two straight sessions of losses.
For the week, the Dow Industrials fell 1.22 percent and the S&P 500 Index declined a more modest 0.07 percent, while the Nasdaq Composite added 0.69 percent.
Among the sector indexes, the NYSE Arca Gold Bugs Index declined 3.76 percent for the week and the Philadelphia Housing Sector Index and the NYSE Arca Securities Broker/Dealer Index lost over 1 percent each. On the other hand, the Philadelphia Oil Service Index rallied 2.44 percent, while the Philadelphia Semiconductor Index and the NYSE Arca Airline Index added over 1 percent each.
With no resolution for the political crisis in sight, the markets may see further weakness. The Dow Industrials has a key support level around 14,990, and if this level is violated to the downside, the 14,916 and 14,802 levels may also serve as supports. On the upside, the index has resistance around the 15,129 level as well as its 100-day MA currently at 15,230, 50-day MA currently at 15,244 and 21-day MA currently at 15,290.
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| US Economic Reports | ||||||||||||
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A number of governmental economic reports due for the unfolding week are likely to be delayed due to the ongoing government shutdown. The minutes of the September 17-18 FOMC meeting, some Fed speeches, the Labor Department’s jobless claims report, preliminary results of a consumer sentiment survey by Reuters and the University of Michigan and the Federal Reserve’s consumer credit report for August are among the economic reports scheduled to be released in the unfolding week.
The Federal Reserve is due to release its report on outstanding consumer credit for August at 3 am ET. Economists expect outstanding consumer credit to increase by $12.9 billion following the $10.4 billion increase in July.
Outstanding consumer credit rose at a seasonally adjusted annual rate of 4.4 percent or by $10.4 billion month-over-month in July. Non-revolving credit tied to auto loans rose by 12.2 billion, while revolving credit tied to credit cards fell 1.8 billion.
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| Stocks in Focus | ||||||||||||
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Activision Blizzard’s Activision Publishing announced that it has filed a patent infringement lawsuit against Worlds Inc. and Worlds Online in a U.S. district court. A patent infringement lawsuit that Worlds Inc. filed against Activision on March 30, 2012 is still pending in another U.S. district court.
Vornado announced its 32.6 percent share of Toys “R” Us’ second quarter results, with Vornado’s results including a net loss of 17 cents per share compared to a loss of 4 cents per share last year. The company’s share of negative funds from operation after income taxes is 11 cents per share.
JANA Partners has taken a 13.5 percent stake in Outerwall Inc., formerly Coinstar. JANA Partners stated that it intends to have discussions with the company's board and management regarding a review of strategic alternatives.
DryShips announced on Friday that it has entered into an Equity Offering Sales Agreement with Evercore Group for the offer and sale of up to $200 million of its common shares.
Cooper Tire & Rubber has filed a complaint stating that Apollo Tyres is breaching the merger agreement clinched between the two companies. Cooper Tire has asked the Delaware Chancery Court to compel Apollo to take actions so that the transaction may close.
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| European Market | ||||||||||||
Stocks slide on US default fears
FTSE 100: -0.87%
DAX: -1.10%
CAC 40: -0.99%
FTSE MIB: -0.24%
IBEX 35: -0.76%
Stoxx 600: -0.88%
Concerns over the US government shutdown and debt ceiling talks dragged European stocks lower at midday on Monday.
Merkel may join forces with Greens, says aide
German Chancellor Angela Merkel’s Christian Democratic Union party could form a coalition with the Green party, a source told Bloomberg.
A top aide to Merkel said a partnership between the two parties was realistic, possibly adding pressure on the opposition Social Democrats.
The CDU and the Bavarian Christian Socialists will hold talks with the leadership of the Greens on October 10th.
It comes after Merkel failed to score enough votes to win the September 22nd parliamentary elections.
Burberry, SAP
Burberry Group declined after the luxury-goods maker’s Chief Executive Officer Angela Ahrendts said a slowdown in Chinese sales may extend.
SAP slid after Reuters reported that the enterprise-software company, along with Cisco Systems and Google, have held talks to buy all or part of BlackBerry.
European Aeronautic Defence & Space Co. advanced after its subsidiary Airbus SAS won its first order from Japan Airlines Co.
Solvay rose after saying it will buy US chemicals maker Chemlogics Group for $1.35bn.
Singapore´s sovereign wealth fund Temasek and Chinese outfit Sinopec are reportedly interested in acquiring a 25% stake in Gas Natural Fenosa, Spanish business daily Expansión reported.
Brent crude slides
Brent crude futures fell $1.071 to $108.300 per barrel on the ICE.
The euro rose 0.13% to the 1.3575 US dollar.
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The major Asian markets fell across the board, concerned about a lack of resolution for the U.S. budgetary impasse. The Chinese markets remained closed for the Golden Week Holiday.
Japan’s Nikkei 225 average showed some nervousness in early trading, moving close to the unchanged line, before declining sharply. The average began moving sideways around the lower levels in the afternoon, ending the session down 170.99 points or 1.22 percent at 13,853. The yen’s safe haven appeal led to its strength, which negatively impacted export stocks.
A majority of stocks declined, with Sharp, Tokyo Electric, Casio Computer, Furukawa and Tokuyama leading the declines.
Australia’s All Ordinaries trended in almost the same manner before closing down 45.30 points or 0.87 percent at 5,161. The market witnessed broad based weakness, with energy, healthcare, financial and material stocks leading the declines.
Hong Kong’s Hang Seng Index closed at 22,974, down 164.95 points or 0.71 percent.
On the economic front, the World Bank cut its growth forecasts for developing East Asia, citing weaker growth in China and the other economies in the region. The bank now projects 7.1 percent growth for the region in 2013, below the 7.8 percent growth predicted in April. The GDP growth forecast for 2014 was also trimmed to 7.2 percent from 7.6 percent.
A report released by the Australian Industry Group and the Housing Industry Association showed that Australia's construction sector activity continued to decline in September, although the pace of contraction was the weakest in almost three and a half years. The performance of construction index rose to 47.6 in September from 43.7 in August.
Preliminary results of a survey by Japan’s Cabinet Office showed that its leading economic indicators index for the nation fell to 106.50 in August from 107.90 in July. Economists expected a reading of 106.60. The coincident index slipped slightly to 107.6, while the lagging economic indicators index remained unchanged at 112.8.
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| Currency and Commodities Markets | ||||||||||||
Crude oil futures are sliding $1 to $102.84 a barrel after moving up $0.97 or 0.94 percent to $103.84 a barrel in the week ended October 4th.
Last Monday, oil extended its slide, declining moderately amid fears before the government shutdown took effect. The commodity declined by a modest margin on Tuesday.
However, oil rebounded strongly on Wednesday, rallying by over $2-a-barrel. The commodity experienced some weakness on Thursday only to reverse course and advance moderately on Friday, ending the week higher.
Gold futures, which fell $29.30 or 2.19 percent to $1,309.90 an ounce last week, are currently climbing $8.90 to $1,318.80 an ounce.
Among currencies, the U.S. dollar lost some ground against the euro in the week ended October 4th, dropping 0.27 percent against the currency to $1.3558. The greenback also declined against the yen, recording a 0.77 percent weekly loss before ending the week at 97.48 yen.
The U.S. dollar is trading at 96.87 yen and is valued at $1.3571 versus the euro.
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