Fundamental News
Today’s highlights:
• Spanish Unemployment Change (Spa: 08:00 GMT)
• Construction PMI (GB: 09:30 GMT)
• Interest Rate Decision (EU: 12:45 GMT)
• ADP Nonfarm Employment Change (U.S: 13:15 GMT)
• ECB Press Conference (EU: 13:30 GMT)
• FOMC Member Rosengren Speaks (U.S: 17:00 GMT)
• Fed Chairman Bernanke Speaks (U.S: 20:30 GMT)
The U.S. has begun using the final extraordinary measures to avoid breaching the nation’s debt limit, Treasury Secretary Jacob J. Lew said as he urged Congress to increase borrowing authority “immediately.” Lew, in a letter addressed to House Speaker John Boehner dated today, repeated that the measures will be exhausted no later than Oct. 17.
A partial shutdown of the U.S. government lasting one week would probably shave 0.1 percentage point from economic growth, according to the median estimate of economists, with the costs accelerating if the closing persists. Estimates of the setback to gross domestic product ranged from zero to 0.4 percentage point, according to 40 economists in a Bloomberg survey. The U.S. government yesterday began its first partial shutdown in 17 years as Republicans and Democrats clashed over whether to tie any changes to the 2010 Affordable Care Act to a short-term extension of government funding.
Manufacturing unexpectedly picked up in September, showing American factories were a source of strength for the world’s largest economy before the federal government shut down. The Institute for Supply Management’s factory index rose to 56.2, the strongest since April 2011, from 55.7 a month earlier, the Tempe, Arizona-based group’s report showed yesterday.
A slowdown in China and India is reverberating across the region with the Asian Development Bank forecasting easing expansion this year, putting pressure on policy makers to take steps to bolster their economies. Developing Asia, which excludes Japan, will probably grow 6 percent in 2013 and 6.2 percent next year, the Manila-based lender said in a report yesterday. In July, it had forecast expansion of 6.3 percent this year and 6.4 percent in 2014. Elsewhere, Japanese Prime Minister Shinzo Abe’s reflation campaign shifted to structural domestic reforms after he unveiled a stimulus package offering a short-term cushion for the first sales-tax rise since 1997. Abe’s administration is honing legislation for its “growth strategy” for the year’s final parliamentary session, an initiative companies will scrutinize for fresh reasons to invest in a domestic market burdened by a shrinking and aging population. For now, they get a slew of tax breaks unveiled with yesterday’s 5 trillion yen ($51 billion) program.
EUR/USD: The EUR/USD traded lower yesterday after the U.S manufacturing Index rose the highest since April 2011. Moreover, traders remained concerned about the impact a U.S. government shutdown could have on riskier currencies. Today, the pair was trading in narrow range of 1.35274 and 1.35061 at the time of writing as investors turned cautious on the market before the Spanish Unemployment Change (Forecast:12.3K – Previous 0.0K), the Interest Rate Decision in the Eurozone and the ECB Press Conference. ECB policy makers will keep the benchmark refinancing rate unchanged at a record low of 0.5 percent, according to all 52 economists in a Bloomberg News survey. Meanwhile, in the ECB Press Conference, Draghi will hold off from pumping more cash into the region’s financial system as long as the threat of action keeps market interest rates under control, according to economists from Berenberg Bank to Nomura International Plc. Later in the day, the U.S will release the ADP Nonfarm Employment Change. U.S. companies added 180,000 to their payrolls in September, according to the median estimate of economists surveyed by Bloomberg. Moreover, the FOMC Member Rosengren and the Fed Chairman Bernanke will speak today. FOMC members are responsible for setting the benchmark interest rate and their speeches are closely watched for indications on the future possible direction of monetary policy. The comments of Rosengren may determine a short-term positive or negative trend. While, As head of the Fed, which controls short term interest rates, he has more influence over the U.S. dollar’s value than any other person. Bernanke speeches should be closely watched, as they are often used to drop hints regarding future monetary policy. Market participants should also keep an eye on the political issues in the U.S and Italy. U.S Lawmakers still need to agree on raising the U.S. debt limit to avoid a default after Oct. 17. Chances of a last-minute deal evaporated as the House stood firm on its call to delay major parts of President Barack Obama’s health-care law for a year. Senate Democrats were equally firm in refusing. On the other hand, Italian Prime Minister Enrico Letta faces a confidence vote today, after former premier Silvio Berlusconi’s decision last week to withdraw support. Berlusconi’s People of Liberty party has splintered, with Angelino Alfano, who stepped down as deputy premier at Berlusconi’s request, saying yesterday his party will back the government. Investors should stay very cautious as lots of volatility in expected today. A wait and see approach may be a good strategy on the pair. The resistance level is at 1.35863 and the support level is at 1.34738.
AUD/USD: The AUD/USD was trading lower at 0.93660 at the time of writing after reports today showed the nation had a bigger-than-expected trade deficit in August and building approvals climbed less than economists forecast, reversing gains from yesterday after the Reserve Bank of Australia kept borrowing costs unchanged. The trade deficit in Australia was A$815 million ($764 million) in August from a revised A$1.38 billion the previous month, the statistics bureau said today. A separate report showed the number of permits granted to build or renovate houses and apartments rose 7.7 percent in August from a year earlier, missing analyst forecasts for a 12.8 percent gain. The events likely to affect the pair today are the ADP Nonfarm Employment Change, the FOMC Member Rosengren and the Fed Chairman Bernanke speech today. U.S. companies added 180,000 to their payrolls in September, according to the median estimate of economists surveyed by Bloomberg. The comments of Rosengren should be watched as they may determine a short-term positive or negative trend, as FOMC members are responsible for setting the benchmark interest rate and their speeches are closely watched for indications on the future possible direction of monetary policy. Bernanke, as head of the Fed which controls short term interest rates has more influence over the U.S. dollar’s value than any other person. His speeches should be closely watched, as they are often used to drop hints regarding future monetary policy. For more indication, market participants should monitor the data and news from the Euro area as they will affect sentiments for risky assets. Market participants should also keep an eye on the political issues in the U.S and Italy. U.S Lawmakers still need to agree on raising the U.S. debt limit to avoid a default after Oct. 17. Chances of a last-minute deal evaporated as the House stood firm on its call to delay major parts of President Barack Obama’s health-care law for a year. Senate Democrats were equally firm in refusing. On the other hand, Italian Prime Minister Enrico Letta faces a confidence vote today, after former premier Silvio Berlusconi’s decision last week to withdraw support. Berlusconi’s People of Liberty party has splintered, with Angelino Alfano, who stepped down as deputy premier at Berlusconi’s request, saying yesterday his party will back the government. The resistance level is at 0.94573 and the support level is at 0.92775.
