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Futures Sell Off As Shutdown Enters Week Two

Tyler Durden's picture




 

Overnight trading over the past week has been a bipolar affair based on algo sentiment about what is coming out of D.C. But which the last session was optimistic for some inexplicable reason that a deal on both the government shutdown and the debt ceiling out of DC was imminent, today any optimism is gone in the aftermath of the latest comments by Boehner on ABC, in which he implied that a US default is not unavoidable and that it would be used as more political capital, as it would be once again blamed on Obama for not resuming negotiations. As a result both global equities and US futures are down sharpy in overnight trading. And since the government shutdown, better known as a retroactively paid vacation, for everyone but the Pentagon (whose 400,000 workers have been recalled from furlough) continues it means zero government economic statistics in today's session with the only macro data being the Fed-sourced consumer credit report at 3 pm. This week also marks the unofficial start of the Q3 reporting season in the US with Alcoa doing the usual opening honous after the US closing bell tomorrow. JPMorgan’s and Wells Fargo’s results on Friday are the other main ones to watch to see just how much in reserves are released to pretend that banks are still making money.

As usual, expect disinformation leaks that send the market sharply higher throughout the day, which however will only make the final outcome that much more painful, because as during every US government crisis in the past, stocks have to plunge so they can soar again.

Overnight news bulletin per Bloomberg and RanSquawk

  • Treasuries gain as U.S. House Speaker Boehner says he doesn’t have the votes for a clean debt limit increase and that the country could default if Obama doesn’t negotiate.
  • The Obama administration has said it won’t negotiate with Republicans
    over funding the government or raising the debt ceiling; Treasury’s Jack
    Lew says limit needs to be raised by Oct. 17 to avoid default
  • There has still been no deal reached between the Democratic-led Senate and Republican House and the US government remains in partial shutdown until a continuing resolution can be passed through Congress. Moody's said US may continue payments after debt cap reached and that debt payments would leave creditworthiness intact.
  • Crude futures trade negatively, both WTI and Brent see losses of around USD 1.00 as tropical storm Karen on the Gulf Coast dissipates into a depression and workers return to reopening platforms.
  • Moody’ said it sees a “very low” chance the U.S. will default on its debt payments
  • The World Bank lowered its forecasts for East Asia’s developing nations this year and next and said China may grow 7.5% this year, lower than an April forecast of 8.3%
  • Sovereign yields mostly lower, peripheral spreads tighter. Nikkei falls 1.22%, leading Asian markets other than China’s lower; European stocks and S&P 500 futures decline. WTI crude, copper fall; gold little changed
  • 3:00pm: Consumer Credit, Aug., est. $12b (prior $10.437b) Supply
  • 11:00am: Fed to purchase $2.75b-$3.5b in 2020-2023 sector
  • 11:30am: U.S. to sell $35b 3M bills, $30b 6M bills

Market Re-Cap from Ran

Risk averse sentiment has been seen across asset classes with no deal in place in regards to the US government shutdown with stocks and energy trading in negative territory while both Bunds and T-notes have seen gains in the European morning.

The combination of unfavourable interest rate flows and the demand for safe haven assets saw USD/JPY make a test on the 200DMA, which also prompted liquidation in long-Nikkei 225 positions (settled down 1.2%). Heading into the North American open, stocks trade lower by around a per cent with defensive sectors, Utilities and Healthcare the best performers. The demand for the above mentioned sectors supports the view that there is limited appetite for risk  and instead market participants are more than willing to benefit from relatively high and stable dividend yield.

Despite USD weakness the energy complex sees losses, as the tropical storm Karen, in the Gulf of Mexico, calms to a depression, energy markets see downside as workers begin returning to platforms.

While the US government shut-down will continue to be the main focus, market participants will also await the kick-off of the latest earnings season, with Alcoa due to report after the closing bell on Wall Street on Tuesday.

Asian Headlines

World Bank cuts China 2013 growth forecast to 7.5% from 8.3% and said that China must contain credit growth, tighten financial supervision and rationalize municipal finances.

The Japanese government is considering revising investment policy for public pension funds, allowing the Government Pension Investment Fund to step up investment in shares of growing Co.s.

EU & UK Headlines

Eurozone Q2 GDP revised down to -0.6% Y/Y vs. -0.5% Y/Y, according to Eurostat Greek 2014 draft budget sees economy shrinking by 4% in 2013

- Unemployment rate at avg. 27% in 2013.
- 2013 net revenues EUR 47bln, EUR 1.5bln short of target.
- Shows growth next year

Equities

After opening lower stocks in Europe have settled into range bound price action. In terms of individual sectors Utilities are the only stocks to trade positively, followed by healthcare which sees only minor losses, a reflection of the lack of risk appetite in the European morning.

BlackBerry is in talks with Cisco Systems, Google and German listed SAP about selling them all or parts of itself, according to sources. The sources added, it is unclear which parties will bid, if any, but the potential technology buyers have been especially interested in BlackBerry's secure server network and patent portfolio. In a notable broker move IBM was cut to equalweight from overweight at Barclays.

FX

JPY and CHF benefited from the flight to quality which was observed this morning in Europe and during the overnight session in Asia. So much so that the move lower by the spot JPY rate saw the major pair make a test on the 200DMA line to the downside which is seen at 96.67. As a guide, option related flow may gather momentum in the second half of the session, especially since there are a number of large expiring options clustered around 96.75 mark.

Commodities

Crude futures trade negatively, both WTI and Brent see losses of around USD 1.00 as tropical storm Karen on the Gulf Coast dissipates into a depression and workers return to reopening platforms.

Goldman Sachs has adjusted its 2014 annual average WTI-Brent differential slightly wider to USD - 9.00bbl from USD - 8.50bbl previously.

Morgan Stanley lowers gold and silver price forecasts by 9-12% in 2015-17 and iron ore price forecasts reduced by 2-5% in 2015-17, UBS however changed its gold outlook to neutral from underweight.

India October-December gold imports are expected at 150 tons, according to All India Gems & Jewellery Trade Federation Chairman Soni.

* * *

Finally, the complete overnight market and news recap comes from DB's Jim Reid

As we enter week 2 of shutdown, the weekend news hasn't exactly encouraged hopes of an imminent compromise. House Speaker Boehner played hard ball on Sunday and said that the House would not back off in budget and debt ceiling discussions without concessions from the President on Obama-care. He also claimed that there are not enough votes in the House to pass a clean Continuing Resolution bill. This assessment, however, prompted a challenge from others, including Senator Charles Schumer, who believed that there are actually enough votes if the clean budget bill was put on the floor. There seems to be some support for this particular view as a Washington Post article overnight highlighted that 195 of the chamber’s 200 Democrats have signed a letter urging Boehner to allow a vote on a clean CR. This, combined with the 22 House Republicans who have signaled support for a clean resolution would give rise to 217 votes - just enough to win a majority vote in the 432 member chamber. Both houses of Congress will be back in session on Monday afternoon and developments on Capitol Hill will continue to dominate markets from here.

Turning to markets, the Asian session has kicked off the week on a softer tone overnight with major bourses down across the board. The Nikkei and the Hang Seng are down -1.1% and -0.7% respectively. S&P 500 Futures are also down by about -0.65%. Chinese and Australian markets are closed for holidays. Treasury yields are also a tad higher despite the softer risk tone with the 10yr up 1bps at 2.631% as we go to print. Asian credit spreads are trading slightly better with IG spreads generally 1-2bps tighter overnight although new issues will likely be the main focus this week as China emerges from its week long holiday tomorrow.

If one is trying to look for some good news it does seem that the longer this goes on, the less likely that the Fed are going to have enough 'clean' data to be confident enough to taper in December. However the December meeting is fairly late (17th and 18th) so there is some time for a successful resolution before it interferes with the data too much. We also have to consider whether the members of the FOMC have been scarred by the market reaction to the no September taper from some quarters and are perhaps more inclined to pull the trigger because of it. Nevertheless when everything is put in the mix, a December taper is more questionable than it was before the shutdown. On this theme it will be interesting to see this week's FOMC minutes (Wednesday) from the controversial September meeting. We should get more clarity on how close the call was which will give us some clues as to how they will vote in the future even if their opinions may have now been overtaken by events in Washington.

The Fed minutes aside there are over a handful of key US data releases expected this week although some of those might still end up being casualties of the partial government shutdown. The vulnerable reports include: US trade balance (Tue), JOLTs (Tue), Wholesale inventories (Wed), Monthly Federal budget (Thurs), Retail sales (Fri), PPI (Fri) and Business inventories (Fri). On the other hand, we should get reports released as per scheduled for the following: Consumer credit (today), NFIB (Tues), Mortgage Applications (Wed), Weekly jobless claims (Thur), and the UofM Consumer Confidence (Fri).

Away from the US, we may see some focus be on the annual IMF and World Bank Summit on Tuesday. On the same day will also see the IMF release its latest World Economic Outlook. It will be interesting to see if the shutdown and debt ceiling gets a mention in the IMF’s latest assessment of US growth outlook. In Europe, we can expect Germany’s exports and factory orders as well as French trade data on Tuesday. This is followed by industrial production data from other parts of Euroland over the remainder of the week.

Last but not least this week also marks the unofficial start of the Q3 reporting season in the US with Alcoa doing the usual opening honours after the US closing bell tomorrow. That aside, JPMorgan’s and Wells Fargo’s results on Friday are the other main ones to watch out for this week although these could easily be overshadowed by the US budget deadlock if political leaders in Washington fail to make meaningful progress before then.

 

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Mon, 10/07/2013 - 07:03 | 4029716 screw face
Mon, 10/07/2013 - 07:19 | 4029723 GetZeeGold
GetZeeGold's picture

 

 

Obama wants a Cloward and Piven collapse and Boehner doesn't want to embrace marxism.

 

This could take a while....the fight for the blame game is going to be super critical here.

 

They call me an anarchist for calling for a return to constitutional government....the world is upside down.

Mon, 10/07/2013 - 07:24 | 4029734 negative rates
negative rates's picture

One murder is a tradgy, a million murders is a statistic.

Mon, 10/07/2013 - 07:35 | 4029740 Town Crier
Town Crier's picture

Paid shutdown is just one more way to shift the consequences of overspending to a third party, the taxpayer.  Don't pay these furloughed workers and the situation will be resolved quickly.

Mon, 10/07/2013 - 07:20 | 4029731 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

Burn this corrupt muther-effer down!!!!

Mon, 10/07/2013 - 07:04 | 4029718 involuntarilybirthed
involuntarilybirthed's picture

Clean CR =  keep pretending that debt doesn't matter.

Mon, 10/07/2013 - 07:11 | 4029720 firstdivision
firstdivision's picture

My small long position from Fri is now a loser.  Guess I'll have to let the circus act play out a bit closer to the 17th before adding to it. .

In other news, this quote made me laugh, "We demand a vote on a clean continuing resolution immediately so that government functioning can resume and Americans can move on with their lives".  My life has been moving along normally this whole time, guess it must be the other 349,999,999 other Americans that are having sleepless nights over the governement faux shutdown.

Mon, 10/07/2013 - 08:04 | 4029770 RSloane
RSloane's picture

I hear you. The important thing is the NSA can continue unabated with spying while this entire debacle offers cover. I'm sure lives were disrupted in horrible ways because the MSM told me so.

Mon, 10/07/2013 - 07:10 | 4029721 the not so migh...
the not so mighty maximiza's picture

no matter the outcome interest rates are going up, its got them scared shitless. 

 

Mon, 10/07/2013 - 07:38 | 4029741 Bobbyrib
Bobbyrib's picture

"As usual, expect disinformation leaks that send the market sharply higher throughout the day, which however will only make the final outcome that much more painful, because as during every US government crisis in the past, stocks have to plunge so they can soar again."

That is completely ridiculous. You act as if the US is a banana republic. /sarcasm.

Mon, 10/07/2013 - 07:43 | 4029744 Zer0head
Zer0head's picture

Hey Barry

what now Joe

I've got a great idea

Joe it better be good cause we're starting to lose traction on this shutdown thing

you'll love this one Barry, what if we shut down the Amber Alert system that should really put some heat on old Boner

Joe, you're a genius

 

http://www.amberalert.gov/

Mon, 10/07/2013 - 07:44 | 4029749 GetZeeGold
GetZeeGold's picture

 

 

I stand in the presence of brilliance.

 

We're not doing this for the children......this is all for us!

 

It's open season on WW2 veterans......apply for your permit today.

Mon, 10/07/2013 - 07:47 | 4029750 butchtrucks
butchtrucks's picture

There is an alternative explanation of America's self-destruction that everyone seems to be missing -- that the Tea Party Caucus consists of Chinese sleeper agents bent on destroying US hegemony from within and undermining Obama's Asian 'pivot' directed against China.

New NSA revelations obtained from Edward Snowden now confirm this theory. See "Tea Party Shutdown Revealed to be Chinese Plot to Destroy American Hegemony: A Creditanstalt IB Exclusive Report!" at

http://silverberg-on-meltdown-economics.blogspot.co.at/2013/10/tea-party...

Mon, 10/07/2013 - 07:53 | 4029754 the not so migh...
the not so mighty maximiza's picture

boy we are fucked, the current president supports, aids and arms Al-Quida, and the tea partiers are workign for the Chinese.  

Mon, 10/07/2013 - 08:16 | 4029782 GetZeeGold
GetZeeGold's picture

 

 

Tea Party Caucus consists of Chinese sleeper agents

 

Ching chong.......MFer.

Mon, 10/07/2013 - 08:29 | 4029803 LooseLee
LooseLee's picture

America's self-destruction is currently in the hands of the Communist, Socialist, and Fascist 'leaders' within. Could be some in the Tea Party, but most are on Wall St. and head the trans-national corporations (not to forget many of them are also in congress). These are the ones who must be eliminated before America can return to its original founding ideals. Sadly, most Americans are in a deep sleep over matters of significance and have no self-awareness. This state of ignorance with no desire to penetrate it prohibits any fruitful action to end it.

Mon, 10/07/2013 - 07:48 | 4029751 Bobbyrib
Bobbyrib's picture

Wonder when gold and silver start taking their hits today. I guess Wall St hasn't gotten settled in yet. They'll pump the dollar and PM's will take a hit. Same shit, different day..

Mon, 10/07/2013 - 08:19 | 4029784 BoNeSxxx
BoNeSxxx's picture

08:29:59... business as usual

Mon, 10/07/2013 - 07:56 | 4029759 butchtrucks
butchtrucks's picture
Tea Party Shutdown Revealed to be Chinese Plot to Destroy American Hegemony: A Creditanstalt IB Exclusive Report

The Creditanstalt Intelligence Bureau (IB), based on an exclusive leak of top-secret NSA dossiers obtained by Edward Snowden, outs the Tea Party faction of the Republican Party as covert ‘Manchurian Candidate’ agents of the Chinese Communist Party (CCP) bent on once-and-for-all destruction of American global economic and political hegemony.

The story in brief:

  • Tea Party leaders, masquerading as ultrapatriotic know-nothing Americans, are actually Chinese sleeper agents wittingly or unwittingly programmed to self-destruct American power as part of a long-term CCP subterfuge program initiated by Chairman Mao Zedong in the 1960s, codenamed “Manchurian Candidate II (MCII),”  inspired by the 1959 novel and 1962 hit movie.
  • Their chief media outlet, Fox News, long ago aligned itself with the Chinese MCII program after News Corporation Chairman Rupert Murdoch reached an agreement in 1993 with the CCP to allow his Sky TV network to broadcast in mainland China (after dropping BBC from his programming and other acts of groveling self-censorship – see NY Times, NY Review of Books and Guardian revelations about Murdoch’s China connection).
  • The wealth of the Tea Party’s chief financial backers, the Koch brothers, goes back to their father Fred’s petroleum activities in the Soviet Union under Stalin. Fred Koch disguised his communist sympathies after returning to the US by becoming a rapid spokesman for the John Birch Society.
  • Manchurian Candidate II follows upon previous failed Chinese subterfuge programs against America such as currency manipulation (now undermined by accelerating Chinese wage inflation) and the American gross obesity epidemic due to addictive consumption of high-fructose corn syrup (now undermined by McDonald’s promotion of salad bars). Both of these programs were initiated during the Nixon administration, and achieved their early success due to the subtle but effective brainwashing and heavy doses of MSG Nixon had been subjected to during his historic meetings with Mao in Beijing.
  • Chinese leaders realized that they could never overtake America by economic growth alone due to their declining birthrate and the limitations of a pure catch-up strategy, as became clear after the Japanese relative stagnation in the 1990s. Their current reliance on MCII is proving to be much more cost effective while preserving the façade of a nativist, anticommunist, anti-big-government grassroots movement. 

A number of prominent commentators have pointed out that the Tea Party Republicans’ use of the debt ceiling as an instrument of political blackmail is tantamount to assisted suicide for American economic and political hegemony, and threatens the stability of the entire economic structure of the Western world (see e.g. Simon Johnson’s “The Loss of U.S. Pre-eminence,” the IMF’s Christine Lagarde’s recent speech, Kenneth Rogoff’s “America’s Endless Budget Battle” or Jonathan Freedland’s “Shutting Down the World?”; read them in the context of my 2009 web essay). While isolationists in America’s past were eager to turn their backs on the rest of the world, their Tea Party descendants actually seem willing to sabotage the foundations of their own country for the purported principle of denying their citizens access to (near but not universal) health insurance, something every other industrialized country has enjoyed for decades cheaper and more effectively than the USA. That the shutdown is not really about ‘Obamacare’ is something leading Republicans have admitted in the meantime:

“We’re not going to be disrespected,” conservative Rep. Marlin Stutzman, R-Ind., [told the Washington Examiner]. “We have to get something out of this. And I don’t know what that even is.”*

President Obama’s cancelation of his Asian trip this week to APEC and ASEAN meetings is already a notable triumph for MCII, since it decisively undermines his ‘Asian pivot’ strategy that the Chinese rightly see as targeted against their great-power aspirations in the Asia-Pacific region.

Even without the Snowden documents it is clear just on a cui bono basis alone that there can be no other rational explanation for the Tea Party’s hijacking of the Republican Party and its unprecedented flirtation with US default than China’s covert Manchurian Candidate II program. The only alternative—pure pleasure in playing a game of chicken with President Obama at the American people’s expense—is patently implausible.

Mon, 10/07/2013 - 08:18 | 4029785 Quinvarius
Quinvarius's picture

So Obama is a collectivist bent on the destruction of America.  We already know that.  Good thing the Tea Party exists to uphold the Constitution.

Mon, 10/07/2013 - 08:14 | 4029781 Quinvarius
Quinvarius's picture

Treasuries gaining as the likelyhood of a default and downgrade increases.  I am not short.  I know it is rigged.  But it is funny as Hell to watch bankers in action.  I mean they were so right about tapering and all.

Mon, 10/07/2013 - 08:30 | 4029801 rsnoble
rsnoble's picture

"stocks have to plunge so they can soar again"

Most important part of article.

Mon, 10/07/2013 - 10:00 | 4030023 Law97
Law97's picture

S&P already up 15 points off the futures low at 3:00 a.m.. 

 

Damn, I wish I could trade futures with the big boys.  "At the sound of the tone, futures will magically levitate on no news ... BEEP."

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