Fundamental News
Today’s highlights:
• SVME PMI (CH: 08:30 GMT)
• Italian Manufacturing PMI (Ita: 08:43 GMT)
• French Manufacturing PMI (Fra: 08:48 GMT)
• German Manufacturing PMI (Ger: 08:53 GMT)
• German Unemployment Rate (Ger: 08:55 GMT)
• Manufacturing PMI (EU: 08:58 GMT)
• Manufacturing PMI (GB; 09:48 GMT)
• Unemployment Rate (EU: 10:00 GMT)
• RBC Manufacturing PMI (Can: 14:30 GMT)
• ISM Manufacturing Index (U.S: 15:00 GMT)
The U.S. Congress headed into the final hours before the first partial government shutdown in 17 years with neither side budging or negotiating before a midnight deadline. House Republicans, led by Speaker John Boehner, plan to meet at 2 p.m. in the Capitol basement to plan their next move. The House is urging the Senate to link a delay of the 2010 Affordable Care Act to a short-term extension of government funding. Senate Democrats, who are also meeting today, plan to strip that language, leaving the House only a few hours to act. A partial shutdown of the federal government would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. While that is a small fraction of the country’s $15.7 trillion economy, the daily impact of a shutdown is likely to accelerate if it continues as it depresses confidence and spending by businesses and consumers. Other News is that the U.S. Labor Department won’t release its monthly employment report if the federal government is closed on Oct. 4, the day of the scheduled release, according to an Obama administration official.
A Chinese factory gauge rose less than economists forecast in September, signaling limits on the nation are rebound from a two-quarter economic slowdown. The Purchasing Managers’ Index was at 51.1, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. Elsewhere, Australia’s central bank left its benchmark interest rate unchanged at a record low as accelerating housing prices outweighed a rebounding currency. Governor Glenn Stevens and his board kept the overnight cash-rate target at 2.5 percent, the Reserve Bank of Australia said in a statement today in Sydney.
Italy’s government is on the verge of collapse and two of its most senior executives have lost the confidence of shareholders. Thanks to Mario Draghi’s promises, bond investors see the turmoil as more of a blip than a crisis. Italy’s politicians are benefitting from the unintended consequences of ECB President Draghi’s promise last year to “do whatever it takes” to backstop the euro. While Draghi, the country’s former central banker, is pushing Italian officials to revamp their economy, the pledge has convinced some investors that, no matter how dysfunctional the country becomes, the ECB will bail it out in the end.
EUR/USD: The EUR/USD traded higher on Monday after a partial shutdown of the U.S. government began with Congress in partisan dead-lock. The disagreement between Senate Democrats and House Republicans threatened to stunt growth at a time when the central bank is weighing a tapering of stimulus. Today, the pair was trading on positive ground at 1.35406 at the time of writing before the release of the Italian Manufacturing PMI (Forecast: 51.0 – Previous: 51.3), the French Manufacturing PMI (Forecast: Flat at 49.5), the German Manufacturing PMI (Forecast: unchanged at 51.3), the German Unemployment Rate (Forecast: unchanged at 6.8%), the Manufacturing PMI (Forecast: flat at 51.1) and the Unemployment Rate (Forecast: flat at 12.1%) in the Eurozone. If strong data are release in the Euro area it should be bullish for the Euro, while weak data should be bearish. Later in the day, the U.S will release the key risk event; the ISM Manufacturing Index. The Index is expected to show a slight decrease to 55.0 compared to the previous reading of 55.7. A higher than expected reading should be taken as bullish for the USD, while a lower than expected reading should be taken as bearish for the USD. Investors should stay very cautious on the currency pair as sentiments remain very fragile given the contentious political situations in the U.S. and Europe. On one hand, in the U.S, Congressional Republicans and Democrats continued to spar over President Barack Obama’s healthcare law, which is seen as a bargaining chip to fund a spending package to keep the government running. Republicans are opposing the president’s healthcare reform and want it delayed in exchange for approving a spending deal. Further, fears that political grandstanding will return anew later in October when the government hits its debt ceiling. Congress must lift the spending limit or risk throwing the country into default. On the other hand, in Italy, Silvio Berlusconi was battling dissent within his own political party after he announced Saturday that he was pulling his ministers out of Prime Minister Enrico Letta’s coalition government and called for fresh elections. Prime Minister Letta is going before parliament for a vote of confidence on Wednesday and will need to secure a majority to remain on in government. Investors should be very cautious and wait for news and data to get certain visibility on the pair. The resistance level is at 1.36006 and the support level is at 1.34697.
USD/CAD: Canada’s dollar touched a four-day high on Monday after a report showed gross domestic product increased at the fastest pace in two years in July, adding to evidence the nation’s economy is rebounding from a second-quarter slowdown. Moreover, Canadian consumer sentiment climbed to the highest in more than two years as employment rose and the country’s housing market remained buoyant, according to the new Bloomberg Nanos Canadian Confidence Index. Today, the pair was trading slightly higher at 1.03098 at the time of writing ahead of the RBC Manufacturing PMI in Canada. The Index (PMI) measures the activity level of purchasing managers in the services sector. A reading above 50 indicates expansion in the manufacturing sector; a reading below 50 indicates contraction. A higher than expected reading should be taken as bullish for the CAD, while a lower than expected reading should be taken as bearish for the CAD. Later in the day, the U.S will release the key risk event; the ISM Manufacturing Index. The Index is expected to show a slight decrease to 55.0 compared to the previous reading of 55.7. A higher than expected reading should be taken as bullish for the USD, while a lower than expected reading should be taken as bearish for the USD. Investors should also monitor the data and news in the Euro area for more visibility as they will affect sentiments for risky assets. Moreover, market participants should closely watch the latest development in the contentious political situations in the U.S. and Europe. The Republican opposition to the funding of the Affordable Care Act has created a standoff with the White House and the Democratic-controlled Senate, which have both said they will not support any budget bill that defunds or amends Obamacare. Political wrangling in Washington over funding for President Barack Obama’s healthcare law continued over the weekend, fuelling fears over a possible government shutdown. It’s important to note that the U.S is the largest trading partner of Canada. While in Italy, Silvio Berlusconi was facing dissent within his political party after he announced Saturday that he was pulling his ministers out of Italian Prime Minister Enrico Letta’s coalition government and calling for fresh elections. Investors should stay focus on the market. The resistance level is at 1.03378 and the support level is at 1.02719.
