s sanity starting to prevail in the US? Not yet, but there are signs that Washington will avert a worst-case scenario. From all accounts House speaker John Boehner has offered assurances around a potential default, although if you look at some of the short-term debt instruments maturing in October, there hasn’t been any relief seen here.
We’ve been looking at the US T-bill maturing October 24, and it’s interesting to see yields spike from negative to fourteen basis points in a couple of weeks. It is also becoming apparent that US banks are starting to load up ATMs with cash in preparation for a worst-case scenario. What is positive though is that it appears as if there are republicans who will to support the Senate bill if a tax on medical devices is removed from Obamacare; what’s more, a group of democrats seem willing to accept it. This highlights to me that there are signs bubbling away in the background that show there are certain US politicians who want to avert a default and actually agree on some sort of budget. This is obviously positive, although far from providing the encouragement for USD bulls to start buying into the USD downtrend and traders to start putting money to work aggressively again in equities.
Still, until we get clarity, it’s far easier to verge on the cautious side with regards to being long risk; until we see a more compelling reason to hold USDs right now, I would either stand aside, or even join the ever growing group of institutions who are short USD/JPY or USD/CHF. USD/JPY is in a short-term downtrend from the September 11 high and trend resistance kicks in at 98.36, so I’d be short until we see this trend being broken. Support kicks in at the 200-day moving average at 96.63, and it’s interesting to see the pair has been above this longer-term average since November 14 (or 232 trading sessions). EUR/USD continues to find buyers as well and is eyeing the year’s high at 1.3711.
The amount of apocalyptic rhetoric is heating up in earnest, with President Obama, the IMF, US Treasury Secretary Jack Lew and a handful of Fed presidents talking about the risks being ‘enormous’, or about ‘catastrophic’ endings if the US doesn’t pay its bills. When you see comments like these it’s tough for anyone to buy, even if you can look through noise. It’s also become quite apparent that there is a clear feed-back loop now between US monetary policy and the fiscal showdowns.
The S&P has broken and closed below the 50-day moving average and is eyeing key support at 1661 (the uptrend drawn from the November 16 low of 1343); a break here could lead the index to test the 200-day moving average at 1594, although I’d be pretty happy to buy the market here. It’s interesting to hear a number of traders talking today about buying USDs and stocks on October 15 as a tactical trade, therefore hoping the US cobbles together a firmer agreement and we get a snapback rally.
Asian equities have generally followed the US lead, with volumes poor again. Japan has been all over the place, finding strong selling early, before rallying into the afternoon. The ASX 200 has closed out the week 0.5% weaker, with many traders taking an extended break next week, so there have been a few traders happy to square off positions ahead of the weekend.
The BoJ meeting was probably the highlight of the session, although nothing was really expected and that was exactly what we got – very little new news. The meeting on October 31 is the one to pay attention to, given we get the BoJ’s six month economic forecasts.
Apart from this, Twitter has been heavily talked about, with the company putting out its prospectus to the market. Our grey market on the Twitter float saw good activity early and it’s interesting to see that our client base see the company having a market cap at close of its first day of listing of $18.3 billion!
European markets look to be slightly offered on the open and data is fairly light with German and eurozone PPI the main economic releases. US non-farm payrolls have been taken off the table and could in theory be released next week, although this will require an end to the shutdown. On the Fed side we get speeches from Richard Fisher, Bill Dudley, Jeremy Stein and Narayana Kocherlakota.