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Futures Slide In Delayed Shutdown Response

Tyler Durden's picture




 

If yesterday was the paradoxical government shutdown "relief rally" pushed higher by a last minute VIX smashing ramp, today reality is starting to set in and global stocks and US futures are set to open lower. The FTSE MIB remains the only European bourse to trade in positive territory in today’s session, having touched upon 2 year highs as it is expected the political tumult that threatened to cause a collapse of the Italian government will be resolved today even as the latest news indicate Berlusconi's PDL will support the Bunga godfather after all. Other European equities have failed to benefit from this as market participants remain cautious ahead of the ECB rate decision today when Draghi may or may not (most likely) announce a new LTRO.

Assisting the down side is negative news for large cap stocks with a number of related companies moving in sympathy. Tesco’s poor earnings report has weighed heavily on the FTSE 100 and other Consumer Goods related stocks, making that sector the worst performing in the European morning. Similarly the DAX is weighed upon by Deutsche Lufthansa, which was downgraded by Deutsche Bank in the mornings most significant broker move. 

Despite the cautious sentiment Financials are the best performing sector, as the banking members of the MIB outperform and participants anticipate the potential of ECB’s President Draghi indicating new liquidity measures in his post rate decision press conference.

Of note today is the ADP employment report. The report takes on added significance considering it’s likely that the release of the  BLS’ nonfarm payrolls (originally scheduled for Friday) will be delayed due to the government shutdown. Reports suggest that the BLS has yet to finish compiling the NFP, confirming a September 10th memo from the BLS’ commissioner that “all survey and other program operations will cease and the public website will not be updated” in the event of a government shutdown. During the last government shutdown in Dec95-Jan96, the December employment report was delayed for two weeks.

Overnight news bulletin from Bloomberg and RanSquawk

  • Still no end in sight for the partial US government shutdown despite a White House spokesman indicating that Obama is willing to compromise.
  • Conflicting reports are seen ahead of the Italian PM Enrico Letta's confidence vote in parliament today.
  • Markets are looking ahead to the ECB rate decision, while expectations are that rates will remain unchanged there is an outside chance of an indication of a new LTRO at Draghi's press conference.
    • ECB will keep its main refinancing rate unchanged at a record low 0.5%
      today, while Draghi will likely hold off from pumping more cash into the
      currency bloc’s financial system as long as  the threat of ECB action
      keeps rates under control  
  • Treasuries gain as partial shutdown of U.S. government shows no signs of ending quickly and as Italian prime minister Enrico Letta headed toward a victory in a confidence vote.
  • The U.S. has started using final extraordinary measures to avoid a breach of the nation’s debt limit, Treasury Secretary Jacob J. Lew said as he pressed Congress to increase borrowing authority “immediately”
  • 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
  • Australia Reserve Bank Governor Glenn Stevens omitted any mention of having scope for further monetary easing for the third policy meeting in a row. Traders are taking that as a green light to drive the local currency higher
  • Sovereign yields mostly lower, peripherals spreads wider, Nikkei drops 2.1%, Asian indexes other than Chinese lower. European stocks, S&P 500 futures down. WTI crude, copper and gold rise

Asian Headlines

Chinese President Xi Jingping said China is determined to stabilize growth and focus on quality and efficiency of growth. Xi further stated that emerging markets should boost risk preparedness and that developed economy policies should avoid negative spillover.

EU & UK Headlines

Conflicting reports are seen ahead of the Italian PM Enrico Letta's confidence vote in parliament today. Italian newspaper ANSA initially reported that around 25 members of the PdL had decided to back Letta and support the coalition rather than voting no confidence alongside party leader and former PM Burlusconi. More recent reports have stated that the PdL is united in support of Berlusconi and against the current government. Letta holds a firm majority in the lower house, but will require at least 20 opposition votes in the Senate to retain governing power.

UK Construction PMI (Sep) M/M 58.9 vs. Exp. 59.5 (Prev. 59.1)

All three sub-sectors of construction grew last month with the sharpest rise in housing since November 2003. Germany sells EUR 4.056bln in 2.00% 2023, b/c 1.3 (Prev. 1.3) and avg. yield 1.79% (Prev. 2.06%), retention 18.8% (Prev. 18.48%)

US Headlines

US President Obama is willing to work on a budget compromise, according White House spokesman Jay Carney. Carney added that the won't negotiate with congress under threat and that Congress has a duty to pass budget bills. US Treasury Secretary Lew said the Treasury has begun using final extraordinary measures to maintain borrowing authority. Lew added the US will exhaust extraordinary measures no later than Oct. 17, leaving the government with about USD 30bln in cash. Lew further stated the government shutdown will not impact projections materially unless it continues for extended period.

Equities

The FTSE MIB is the only European bourse trading in the green as the political tumult seen in the early part of the week seems to be on the road to resolution as some of former PM and PdL party leader Berlusconi's followers are reported to have separated to support current PM Enrico Letta.

Microsoft - According to sources, three of the top 20 investors in the co. are lobbying the board to press for Bill Gates to step down as chairman of the software company he co-founded 38 years ago.

FX

EUR/USD traded steady this morning, as market participants remain reluctant to commit to positions of the key ECB meeting, however shorter dated implied vols are bid and 1m is at its highest level since early September, indicating heightened risk surrounding the even. In terms of option expiries, majority are centered around 1.3200 level. GBP maintains early gains despite a momentary down tick following disappointing Construction PMI data as EUR/GBP is seen lower ahead of the ECB's rate decision.

Commodities

US API US Crude Oil Inventories (Oct) W/W 4500K vs. Prev. -54k

- Cushing Crude Inventory (Oct 01) W/W -83K vs. Prev. -395K
- Gasoline Inventories (Oct 01) W/W 326K vs. Prev. 341K
- Distillate Inventory (Oct 01) W/W -157K vs. Prev. 485K

Russian September oil output at post-Soviet record of 10.526mln bpd.

Even though spot gold is trading higher, the location of 21DMA (1340.28) and 100DMA lines (1338.40), where the shorter dated moving avg. looks set to cross the longer-dated one indicates that there is scope for prices to head south. This morning has seen continued bearish comments on gold, the latest forecasts from Bureau of Resources and Energy Economics show that gold is expected to trade at USD 1275/oz in 2014 vs. USD 1439/oz in 2013 and analysts at Citigroup expect gold to find base at USD 1100-1200/oz.

* * *

We conclude, as usual, with DB's Jim Reid summary of overnight events:

Global risk markets have largely recovered from the risk-off tone that prevailed at the start of the week when fears of a government shutdown and to a lesser extent, Italian politics dominated sentiment. Indeed, the S&P500 (+0.8%) finished yesterday not too far off its level seen at this point last week – and it’s a similar story across US IG, European iTraxx, Stoxx600, EURUSD and 10 year UST yields which all closed at levels similar to those seen one week ago. One of the worst performers over the last week has been gold, which slipped back below $1300/oz yesterday and is down around 3% over the past week.

Looking at our screens this morning, Asian equities are trading with modest gains in the KOSPI (+0.2%) and ASX200 (+0.2%). The Hang Seng (+1.1%) is leading this morning’s gains but it’s partly a case of “catch up” after being closed yesterday for Chinese National Day holidays. A stronger yen (USDJPY - 0.3%) is weighing on Japanese stocks and there are probably some aftereffects from Abe’s decision on Tuesday to hike sales taxes. S&P500 futures are down 3pts (or -0.15%) this morning while Asian credit is trading around 1-2bp firmer with some new shorts being entered following a decent performance yesterday. 10yr yields are close to unchanged at 2.65% overnight after yesterday’s ISM data (56.2 vs 55.0 expected) contributed to a 4bp rise in yields.

There are an increasing number of political analysts suggesting that the US government shutdown could now last for greater than a few days. Some are expecting that the shutdown may end up being folded into the looming debt ceiling debate. Treasury Secretary Jack Lew warned overnight that the treasury has begun using “final extraordinary measures” to avoid breaching the nation’s debt limit. In a letter addressed to Republican House Speaker Boehner, Lew repeated that the measures will be exhausted no later than October 17th. In terms of the continuing resolution, there are now around 12 House Republicans who say that they will back a “clean” bill (i.e. without provisions to defund/delay Obamacare) that would bring the shutdown to an end, according to the Washington Post. In theory, a clean bill could pass with just 17 Republican votes if all 200 Democrats in the House voted in favor of it and a vote were to take place. However, supporters of a clean continuing resolution are so far relegated to Republicans from the Northeast and California – which may not be a reflection of the broader House Republican conference (Washington Post). While a vote on a clean CR bill may or may not take place, Republican House leaders were busy yesterday introducing a series of separate bills to restart funding for national parks, veteran services and services in Washington DC. The bills required a two-thirds majority approval in the House, which they failed to achieve late last night.

Continuing on the political theme, Italian bond yields rallied 15bp yesterday after further talk of splintering within the ranks of Berlusconi’s PDL party. The PDL’s party secretary Alfano, who stepped down from the coalition cabinet last week, said that Prime Minister Letta will get the backing of the PDL party, potentially without Berlusconi’s blessing, in a Senate confidence vote. A confidence vote could take place as early as today. Letta rejected the resignations of Alfano and Lupi and the three other PDL ministers on Tuesday, a signal that he may value their public backing (Reuters).

Briefly previewing today’s ECB Governing council meeting, DB’s Gilles Moec and Mark Wall believe it will be easier for the ECB to convey its prudent, dovish message to the market than in the last two months. Although the recovery continues, the pace of “positive surprises” in the dataflow has eased somewhat. Furthermore, political risks (Italy, German Constitutional Court decision on OMT) have resurfaced in investors’ focus. Another LTRO rather than a rate cut would increasingly be the ECB’s weapon of choice if economic and financial conditions were to sour, but Moec and Wall think the bar for the Governing Council to move from verbal steering to actual decisions is very high. As a result, they think that another LTRO is not imminent - although it’s fair to say that market anticipation of some form of liquidity boost for European banks has been increasing.

Also worth watching closely is today’s US ADP employment report. The report takes on added significance considering it’s likely that the release of the  BLS’ nonfarm payrolls (originally scheduled for Friday) will be delayed due to the government shutdown. Reports suggest that the BLS has yet to finish compiling the NFP, confirming a September 10th memo from the BLS’ commissioner that “all survey and other program operations will cease and the public website will not be updated” in the event of a government shutdown. Indeed, during the last government shutdown in Dec95-Jan96, the December employment report was delayed for two weeks. In terms of today’s ADP, consensus expectations are for a gain of +180k, but we note that the correlation between ADP and nonfarm payrolls has been patchy on occasion.

For example, the ADP report showed a gain of +198k in July, which was more than 90k higher than the BLS nonfarm payrolls report of that month (+104k). Looking to the day ahead, Italian Prime Minister Letta is scheduled to speak at 9:30am local time before the upper house to make a case that his coalition deserves to maintain its mandate to govern. A formal confidence vote may come afterwards. The focus will then turn to the ECB Governing Council meeting which will be followed shortly by Draghi’s press conference. In the US, the ADP employment report will be the main data release. The latest US weekly mortgage applications are also scheduled today. Apart from Draghi, other central bank officials lined up to speak include the Boston Fed’s Rosengren (a FOMC member). Bernanke speaks today on the topic of “Community Banking in the 21st Century” after the market close.

 

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Wed, 10/02/2013 - 07:17 | 4013198 sbenard
sbenard's picture

CELEBRATE the shutdown of non-essential government. This is a GOOD thing!

Wed, 10/02/2013 - 07:25 | 4013205 negative rates
negative rates's picture

This amusement ride is making me exhausted.

Wed, 10/02/2013 - 07:27 | 4013209 GetZeeGold
GetZeeGold's picture

 

 

The slide is in anticipation of the almost certain conservative cave in.

 

Could we just keep the shutdown going for at least 24 hours? We're making money hand over fist here.

Wed, 10/02/2013 - 08:21 | 4013299 NoDebt
NoDebt's picture

.... or it could have nothing to do with the shut-down.  Maybe they saw the Swirlogram (posted on ZH in another article yesterday) pointing to something more important- global economic slowdown.  That damned pesky "real economy" always getting in the way of good propoganda.

Wed, 10/02/2013 - 08:24 | 4013306 Alpha Dog Food
Alpha Dog Food's picture

Watching cartoons is marginally better than this comedy.

 

My favourite here is 'Whatever Happened To The Occupy Movement'

http://www.youtube.com/user/mrjosephmorgan/videos

Wed, 10/02/2013 - 07:44 | 4013236 MoneyPowerWomen
MoneyPowerWomen's picture

Does this mean the PPT are among the poor geezers furloughed? oh dear we are in trouble

Wed, 10/02/2013 - 07:27 | 4013211 Ghordius
Ghordius's picture

have a good look at what was deemed "essential", by the US Congress. notice something?

Wed, 10/02/2013 - 07:29 | 4013214 GetZeeGold
GetZeeGold's picture

 

 

It's amazing what's not really essential when you really stop to look at it.

Wed, 10/02/2013 - 07:33 | 4013221 cloudybrain
cloudybrain's picture

no news are good for USD. so bankster can rollercoastering the market..

more laugh..

Wed, 10/02/2013 - 07:43 | 4013238 KidHorn
KidHorn's picture

Furloughing gov't workers does nothing to help the deficit and it's the dumbest way to balance the budget. It's not a good thing at all. Too bad ZH posters are so math challenged.

Here's the facts....

The gov't will save about $8.5 billion annually in wages and benefits. That's 3 days of FED POMO. In Net, the savings will be less because much of the money is taxed. And much of the taxes go to state and local gov'ts that can't print. If the workers were let go permananetly, they would file for unemployment, which would negate much of the savings and the money would come from states, which, again, can't print.

The gov't spends way more in entitlements than it spends on salaries. Paying welfare to people who do nothing (Which I suspect many on this board fit into this category) is worse than paying someone to do something. Even though many gov't workers are worthless, not all of them are. Some of them are productive. While, everyone on welfare is worthless.

Wed, 10/02/2013 - 07:19 | 4013199 firstdivision
firstdivision's picture

back down to yesterday's lows only to be ramped to 1694 again by 4pm. 

Wed, 10/02/2013 - 07:36 | 4013224 fonzannoon
fonzannoon's picture

Yes it will. Now let's all give thanks to the bernak for this wonderful dip. 

Wed, 10/02/2013 - 07:25 | 4013206 J Pancreas
J Pancreas's picture

I wonder when the average mart-kart sheep will recognize that our way of life depends on being able to go further into debt each day? Personally, I'm so disillusioned to the whole prison-rape in the shower of myself and my countrymen that stories like this make me chuckle at the idiocy of it all.

Wed, 10/02/2013 - 07:26 | 4013212 ZippyBananaPants
ZippyBananaPants's picture

On the second day of the last government shutdown , Monica blew the president for the first time.
Who is going to step up this time?

Wed, 10/02/2013 - 07:38 | 4013226 GetZeeGold
GetZeeGold's picture

 

 

Paging Reggie Love......please pick up the white courtesy phone.

Wed, 10/02/2013 - 07:40 | 4013228 DaddyO
DaddyO's picture

Reggie?

DaddyO

edit: Damn, got beat by a few seconds! Great minds think alike?

Wed, 10/02/2013 - 07:43 | 4013234 GetZeeGold
GetZeeGold's picture

 

 

Heh heh.

 

Snatch the pebble from my hand grasshopper.

Wed, 10/02/2013 - 07:28 | 4013213 rsnoble
rsnoble's picture

"leave the US gov't with 30billion cash"............what's that?  A couple hair cuts and lunch for all of them?

Wed, 10/02/2013 - 07:33 | 4013218 Devotional
Devotional's picture

"haircuts"? ssshhhh ... that is what the public transport labor union demanded 3 months ago in Portugal  ~ 12 Euro a month for haircuts!

Do NOT give them ideas ffs!

Wed, 10/02/2013 - 07:28 | 4013215 Devotional
Devotional's picture

can anyone answer this please? did the socialist democrats in the USA push forth Obamacare?

 

Wed, 10/02/2013 - 07:47 | 4013240 GetZeeGold
GetZeeGold's picture

 

 

Well, some progressive republicans helped.....but they would rather you didn't know it.

Wed, 10/02/2013 - 07:49 | 4013241 Ghordius
Ghordius's picture

is this a trick question?

the way most of the other Western countries understand it is that your current health care system leaves some 25m uninsured in an environment where lots of employees have their healthcare provided by their employer (an exceptional setup, world wide) and health care is extremely expensive

instead of having a single-payer system (the socialist solution which most Western countries have), both houses of Congress voted for a system which has only one analogy I'm aware of (Switzerland) where "to insure" and "to be insured" becomes a duty. Yet the "Affordable Care Act" is way more complicated than anything that has ever been tried, yet

but calling Obamacare socialist? it's liberal

Wed, 10/02/2013 - 07:50 | 4013243 Devotional
Devotional's picture

agreed.

Wed, 10/02/2013 - 08:02 | 4013264 Ghordius
Ghordius's picture

eh? no fight? perhaps I have to write what european socialists would add, at this point, i.e. that the US health care system is expensive because of this thing of "insurance through corporations", which they find servile (as in serf)

Wed, 10/02/2013 - 08:28 | 4013314 overmedicatedun...
overmedicatedundersexed's picture

Ghordius using your hammer for every country is your problem, pay for service and charity is an option not in your tool box. sad

Wed, 10/02/2013 - 08:55 | 4013362 Devotional
Devotional's picture

I live in Europe and am testimony to universal care and private health insurance, I have the latter. Due to past experiences (very bad ones) with the universal healthcare system I avoid it at all costs. The doctor-patient interaction is pathetic to say the least - imagine speedy gonzalez during consultation. One sits an entire morning or day waiting to be seen and if you have an operation to be done you will wait months or even years (true story, fact) on end waiting to be operated - you either have someone on the inside that will hasten your process. There is no proper doctor-patient relation as the state determines what treatment is best for you - yes, this is what I have experienced in the past. This Eurocentric way of looking at healthcare is removing quality - you are taxed to oblivion and one does NOT get the same quality. The last time I went to the public hospital with a makerel fish spine stuck in my throat I had to wait 2 hours before being seen - when I eventually got seen to, the doctor wanted to send me to another hospital in another CITY as they did NOT have the proper "specialist" available. What did I do? I ran to the toilet (restroom) and "carved" out the fish spine from my throat with my fingers. Why? To avoid having to wait an additional 2 hours to be seen. That is just one experience of a few - I made a promise to avoid public healthcare at all costs.

Wed, 10/02/2013 - 10:59 | 4013745 Ghordius
Ghordius's picture

"I live in Europe"? 28 different health care systems. you'd have to be more specific. being sick in Portugal or in the UK or in Poland are completely different things

Wed, 10/02/2013 - 09:04 | 4013377 Devotional
Devotional's picture

Ghordius must believe in this new Politburo that is the European Union. An unelected commission not accountable to anyone - especially the "Directorate-Generals" who have been there for DECADES and who are absolutely unelected and unaccountable too.  These "directorate-generals" are responsible for overseeing the money inflows and outflows - the EU accounting books have NEVER been given the green light by any accountant, there is FRAUD and this is fact. Ask Marta Andreasen from the EU what happened to her when she was head accountant a few years ago. The Euro is failing and that blind allegiance you have to a failed single monetary system is leading the continent into desperate times. How is it possible to have an UNACCOUNTABLE & UNELECTED body governing Europe? Please answer this question . Please!

Wed, 10/02/2013 - 11:05 | 4013776 Ghordius
Ghordius's picture

if this would be so I'd have a EU flag on my avatar. but since you wish so, I'll defend for a moment the EU

unaccountable? why? in the EU nothing happens without the governments of the countries (aka council) giving their OK. and they are accountable to their parliaments (and in most cases can be fired on a whim of them). which means nothing happens without the parliaments agreeing

in the remote case you are a Brit: does Westminster vote on leaving the EU? no. could they leave the EU with one vote? yes

unelected? who? the council (see above)? the EU parliament? (hardly). the EU commission? well, they are commissioned, aren't they? by the council and the parliament

interestingly, there are a lot of EU aficionados (often federalists) who hate the EUR, "cause it endangers the EU"

Wed, 10/02/2013 - 11:10 | 4013804 Ghordius
Ghordius's picture

overmedicatedundersexed, could you please write in a way that a foreigner like me can comprehend them? I have no clue what you mean

Wed, 10/02/2013 - 07:48 | 4013242 KidHorn
KidHorn's picture

I'm not sure what you're asking, but the ACA was passed by both houses and ratified by Obama a few years back.

Wed, 10/02/2013 - 08:24 | 4013303 overmedicatedun...
overmedicatedundersexed's picture

hey kid, still did not respond to my question several threads ago...0 input by repubs in obumacare, 0 votes for it by them and you call that represenative government, in ussr you got to vote ,but it was for one party only, idiots like you denigrate ZH.

Wed, 10/02/2013 - 07:38 | 4013225 icanhasbailout
icanhasbailout's picture

Just stick with the Bernanke Rule of Thumb: good news for the health of the private economy, short or long term, will drive markets lower.

Wed, 10/02/2013 - 07:41 | 4013233 Jahbulon
Jahbulon's picture

The part of this whole shut down that really bothers me is the unethical reporting being done by the media.  No one is looking at both sides of this objectively.  I just cannot help but wonder if the media will be happy when they finally get the world they think they want to create?

Wed, 10/02/2013 - 08:00 | 4013260 PR Guy
PR Guy's picture

 

 

I find watching cartoons as good as watching the government. So I'm going to keep busy this shutdown holiday with the following selection.

http://www.youtube.com/user/mrjosephmorgan/videos

 

I like 'Whatever Happened To The Occupy Movement' best.

 

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