Steady start for European markets Thursday as market participants, thanks to a relatively respectable session in Asia on the back of report showing that China’s services sector expanded to a six-month high in August. Upside momentum however is likely to wane as investors continue to refrain from amping up the risk on the lack of progress on ending the US shutdown by lawmakers. Obama met Republican lawmakers yesterday but there in at attempt to break the deadlock but there was no breakthrough with both parties blaming each other. Traders are hoping to hear of some political compromise before the week comes to an end but as of now, are not discounting the possibility of the shutdown running into next week. On top of that, the looming debt ceiling debate also has the market on edge. The fact that US lawmakers are tied in a game of political brinkmanship over a fresh budget leaves traders not feeling too confident that lawmakers will be able to find common ground on raising the debt ceiling. Indeed, failure to do so could see a US default. President Obama warned Wall Street last night that a conservative faction of the Republicans is willing to allow the US to default on its debt, lifting fears in the market that such a scenario could be played out. A silver lining in all of this is that the Federal Reserve will have little choice but to hold off from tapering asset purchases for the month of October and November for sure. It’s very unlikely the Fed will initiate the process with the budget battle in the backdrop as it would be detrimental to US economic growth. Furthermore, economic data out of the US has been mixed with good news this week out of manufacturing PMIs but the ADP jobs report yesterday falling short of expectations, reflecting the slow momentum in the labour market. Closer to home, its calmer after yesterday’s events which saw Italian PM Letta win his vote of confidence with the surprise backing of Silvio Berlusconi who earlier attempted to bring down the government. At the same time, the ECB kept policies unchanged and reinforced their forward guidance measure as well as leaving the door open for more non-standard measures like another LTRO, if needed of course. Looking ahead, we have PMI services data out of the euro zone, UK and the US. We also have retail sales data out of the euro zone as well as jobless claims and industrial new orders out of the US. ________________________________________ Ishaq Siddiqi Market Strategist
Posted on: Thu, 03 Oct 2013 07:21:17 +0000
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