Earnings Season Starts With Government Still Shut; 9 Days Till The Debt X-Date

Tyler Durden's picture

Markets are so obsessed by developments with the US debt ceiling, that absolutely nobody noticed that the Japanese Current Account (JPY152Bn, Exp. JPY520bn), Industrial Outuput in Spain (-2.0%, Exp. -1.6%), Factory Orders in Germany (-0.3%, Exp. +1.2%), Trade Balance in Germany (€13.1bn, Exp. €15.0 bn) and that the Jan-Aug tax revenue in Greece below expectations by 5.7%, all missed horribly, and that for all the talk of a European recovery (which was merely driven by a brief surge in Chinese credit spending making its way into the European pipeline) is once again fully and entirely premature. But with Congress on everyone's mind, even increasingly China and Japan, who cares about fundamentals: after all there is a Federal Reserve to mask the fact that nothing but liquidity injections matters. Even if that means a complete collapse in the actual economy as those separated from the Fed by one or more layers of banks, crash and burn.

Market ReCap via Ran

Despite stocks trading lower throughout the European morning, as fears of the political deadlock in the US having economic consequences grows and reports that future reliance on ECB funding may result in penalties for banks EU, financials were among the best performing sectors.

Reports that EU regulators overseeing next year’s stress tests are preparing to penalise lenders that continue to rely on ECB’s funding schemes resulted in the steepening of the Euribor curve. This was offset by bullish comments from Templeton’s Mobius on Greek and Portuguese banks, as well as the fact that Monti Paschi announced further measures to secure EUR 4.1bln in state aid. Nevertheless, despite USTs and Bunds also trading lower, concerns over potential implication of US failing to meet its financial obligations meant that money rates remained bid, with FT reporting that financial firms trading in US Treasury securities are preparing contingency plans in the event of a debt default.

The FTSE MIB is the only EU index to trade positively as its banking sector benefits from the aforementioned Monti Paschi restructuring plan as well as remaining up after the political turmoil has been resolved last week. Despite the cautious sentiment, EUR/CHF and USD/JPY traded higher, benefiting from favourable interest rate differential flows.

Going forward, market participants will digest the release of US NFIB and the release of the weekly API report. Also, Alcoa will kickoff the latest earnings season after the closing bell on Wall Street.

Overnight news bulletin from Bloomberg and RanSquawk:

  • Treasury yields modestly higher overnight as rhetoric between Obama, Republican leaders grows more divisive; note and bond auctions begin with $30B 3Y notes; yield 0.68% in WI trading after drawing 0.913% in Sept.
  • Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the $16.7t debt ceiling, probably for a year, unless two-thirds of both chambers of Congress disapprove
  • China and Japan, which together hold more than $2.4t in Treasuries, raised pressure on the U.S. to resolve a political impasse on its debt ceiling that threatens to destabilize global financial markets
  • Purchases of Canadian dollars by central banks totaled $16.8b in 2Q, while those for the Aussie were $13.5b, based on IMF data compiled by Nomura. No other currencies saw as much buying
  • Japan’s Government Pension Investment Fund, the world’s largest manager of retirement savings, needs to reduce the risk of losses on its bond holdings should interest rates start to rise as the economy improves, according to the head of an expert panel advising on public investments
  • Sovereign yields mostly higher, peripheral spreads tighter. Nikkei rises 0.30%, leading Asian markets higher; European stocks decline, S&P 500 futures flat. WTI crude, copper, gold rise
  • Moody's says the AAA rating and stable outlook for US reflects that default is an extremely unlikely event.
  • EU regulators overseeing next year’s long-awaited stress tests of the region’s banks are preparing to penalise any lender that remains reliant on the ECB’s landmark cheap funding scheme.
  • Alcoa and Yum! Brands kick-off Q3's earning season as they are due to report after the close on Wall Street

Asian Headlines

Chinese HSBC Services PMI (Sep) M/M 52.4 (Prev. 52.8)
China Q4 2013 economy may grow 7.6%, according to the State Information Centre

EU & UK Headlines

EU regulators overseeing next year’s long-awaited stress tests of the region’s banks are preparing to penalise any lender that remains reliant on the ECB’s landmark cheap funding scheme.

British Chambers of Commerce said British firms reported broad-based growth in business and confidence in Q3, pointing to a rise of around 1% in GDP.

UK RICS House Price Balance (Sep) M/M 54% vs. Exp. 45% (Prev. 40%, Rev. 41%), fastest pace of increase in 11 years.

UK house sales hit 4-year high in September.
UK BRC Sales Like-For-Like (Sep) Y/Y 0.7% vs. Exp. 2.0% (Prev. 1.8%), weakest since April.
UK BRC Total Sales Values (Sep) Y/Y 2.4% (Prev. 3.6%), weakest since April.

Italian Deficit to GDP (YTD) (Q2) 4.1% (Prev. 7.3%)

German Factory Orders (Aug) M/M -0.3% vs. Exp. 1.1% (Prev. -2.7%, Rev. to -1.9%)
German Factory Orders (Aug) Y/Y 3.1% vs. Exp. 4.0% (Prev. 2.0%, Rev. to 2.3%)

US Headlines

Moody's says the AAA rating and stable outlook for US reflects that default is an extremely unlikely event. However the FT reported that financial firms trading in US Treasury securities are preparing contingency plans in the event of a debt default. (FT-More)


A positive close in Asia was not carried over to the European session with all but one, the Italian FTSE MIB, trading in the red. The FTSE MIB mainly benefits from the fact that its third largest bank announced an improved restructuring plan to secure EUR 4.1bln in state aid. Financials are among the best performing sectors after two successive days which have seen bullish comments by US investors on prospects for the sector in the European periphery


Despite the risk averse sentiment as evidenced in lower trading stocks, USTs and Bunds traded lower which in turn saw USD/JPY benefit from favourable interest rate differential flows, which also saw the pair move above the key 200DMA line. Elsewhere, AUD and NZD benefited overnight following an improving NAB Business Confidence and an increased ANZ Job Advertisements. Elsewhere a brief spike lower was seen in GBP/USD when at 1040BST newswires reported a Bank of England LTRO announcement. However price action was quickly retraced as it was clarified that this was part of their regular operations and not anything new from the BoE.


Both Goldman Sachs and Credit Suisse see shorting gold as the best commodity trade and with Credit Suisse also recommending shorting iron ore. Credit Suisse analysts also note that PGMs will do well over the next year, led by palladium and then platinum. Commerzbank's Head of Commodities Research Weinberg, however, said he expects gold prices to rise and sees 'value' in industrial metals such as zinc, lead and copper.

According to the FT there is to be a big shake up in the US gas market as the northeast region of the country that is traditionally seen as the biggest area for consumption in the US is set to become the biggest supplier due to increased drilling in the area.

According to shipping data fuel oil supplies to Asia have risen to 3.7mln tons in November while Russia's Putin has called for other Asian nations to follow Russia by expanding the Northern Sea route as Russian companies have capacity to increase energy exports to the Asia-Pacific region.

* * *

Deutsche's Jim Reid provides his complete summary of overnight events:

There is a growing concern that America may go beyond the 17th of October (the date Treasury Secretary Jack Lew originally said the US would hit its debt ceiling) without the debt ceiling being raised. Here it’s important to point out that this is not necessarily the disaster it may initially sound. First there is a growing feeling that the 17th is not a hard and fast date; with the math suggesting the Treasury may only breach the debt limit towards the end of the month. Perversely such a realisation is not helping the urgency of the resolution discussions and makes the probability of the shutdown extending beyond Oct 17th higher. Second if the US does hit its debt limit and goes into technical default this shouldn’t need to cause financial chaos as long as there continues to be an expectation that missed coupon payments will eventually be repaid within days or at worse weeks (i.e. a deal will eventually come). The problem comes as the longer we go past the debt limit date and the deeper in arrears the US government gets, the greater the chance of a sudden break in the system. No-one can really speculate as to when such a break would occur. Frank Kelly suggests that the next thing to watch for might be the expected upcoming vote in the House to pass a 6 month Continuing Resolution to reopen the government with a host of new proposals tagged on (such as on tax reform and the keystone pipeline). This vote is again likely purely symbolic (the Senate is unlikely to even table it for a vote) however it does offer a chance to see whether any more Republicans are defecting from the party line (in the last vote 6 opposed the bill, demanding a real solution). Timing of potential vote is unknown at this stage but the House will be meeting again today.

Turning to markets, Asian equities have been posting gains despite the S&P 500 (-0.85%) closing at the low’s yesterday. The Hang Seng (+1%) and Chinese A-shares (+0.6%) are outperforming this morning boosted by reports of PBOC liquidity injections. A-shares have reopened after a one week hiatus for National Day celebrations. Other regional indices including the Nikkei and KOSPI are up marginally as is the S&P 500 futures contract (+0.01%). Japanese current account numbers for August showed a deterioration in the overall balance to JPY152bn (vs JPY577bn previous month and JPY520bn
expected). Despite this, USDJPY is about 0.4% higher overnight.

Returning to yesterday, markets were again in controlled risk-off mode as they erased gains from last Friday. S&P 500 futures closed at the lows of -1% as Friday’s optimism that we would see a weekend budget deal evaporated amid another day passing without a softening in stance from either side. There was a small bounce in risk in the second half of the US session after reports surfaced that Senate Democrats could introduce legislation today that would give President Obama the authority to raise the debt ceiling for one-year, unless two-thirds of Congress disapproved. Reports suggest that more Republicans would be willing to vote for a bill of this type as it would not require a direct vote to raise the debt ceiling. Amid the risk off tone, government bond yields across the US and Euroarea firmed by 2-3bp. The USD index continued its slide against major currencies, closing below 80.0, thus benefitting gold (+0.92%) and crude oil (+0.2%). Credit markets were relatively stable, with cash spreads unchanged, supported by the drop in treasury yields.

With all the political event risks, the fact that today marks the start of the US Q3 reporting season has largely gone unnoticed. Alcoa starts the ball rolling with its earnings announcement post the US closing bell. The aluminium maker is expected to report a small YoY drop in revenue to $5.6bn, but EPS is expected to come in at 5.3c per share, or a 78% increase on the same period last year. As is usual, investors will be focusing on management’s commentary with respect to the outlook for alumina and aluminium demand.

Today’s data calendar will be mostly European-centric given that US trade numbers and the JOLTs job report (originally scheduled for today) have been postponed due to the shutdown. In Europe, the focus will be on French and German trade numbers for August and German factory orders. In the US, the NFIB small business survey is the only major data release of note. The Fed’s Pianalto and Plosser (non-voters) will be speaking on the outlook for the economy.

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GetZeeGold's picture



Government is shutdown except for the scenic turnoffs at Mt. Rushmore....that place is like a police state.


So how much is that costing us?

krispkritter's picture

Wait to see what it costs us in $$$ and National Pride when Oboohoo gets his fugly mug on the Mt.

dontgoforit's picture

Rand Paul said yesterday (and I agree), "There will be no default.  How can you default when you have $250 billion in receipts every month and the debt payment is only $20 billion?"  Fear-mongering by the libs has this thing stirred up.  Truth is we have much more government than we need (much more).  Libs want everyone to work for the govt.  Power hungry, empire builders.

Headbanger's picture

The declining dollar value is a partial  default essentially. And that is threatening the world currency status of the dollar which would cause much greater dollar devaluation and thus a nearly total default on US Treasuries.

Squid-puppets a-go-go's picture

these earnings are like a desperate schoolkid trying to impress their teacher "miss, miss, miss, miss, miss"

asteroids's picture

The other thing not widely reported (if its true) is that Russia has raided private pension funds. Think about this for a second, a G7 member for some reason seems to be broke! Where is Boris when you need him!

DavidC's picture

There's no default unless they can't pay the interest and tax revenues are ten times that.


Headbanger's picture

As if interest on the debt is the only Federal expense

FreeNewEnergy's picture

Friends, Romans, ZHers and countrymen, lend me your ears. I come not to bury Obama, but to praise him.

Clear out the biases already developed over his illegitimacy, stupidity, narcissism, etc., for a moment and hear me out. Mr. President is doing the best thing that we, holders of gold and silver with stores of guns, ammo and food, could have ever hoped for by refusing to negotiate over either the shutdown or the debt ceiling, holding the strawman Obamacare over everyone's heads.

Isn't complete and total destruction of the US government and the Federal Reserve what we have longed for these past five, six years? Obama is bringing it to us, albeit in a haphazard manner, although one might suspect that such earth-shaking events don't happen neatly, anyway.

By refusing to negotiate on anything, in addition to having unblinking adversaries in the House of Representatives (our beloved Tea Partiers), the president, with an assist from congress, has already partially shut down the government and has paved the way for a no-win condition over the debt ceiling. The genii in the White House (aka Jack Lew and his buddies) and at the Fed have no doubt already figured out the next moves. When the debt ceiling debate fails to produce a responsible result, the government will begin to prioritize spending, paying off creditors first (interest on the debt), and probably Social Security and military pay (not necessarily in that order) next, and so on down the line.

The US federal government can, and will, proceed in this manner for quite some time, slimming down, shutting agencies, cutting budgets by blunt force and actually becoming somewhat fiscally responsible. During this period, there will be considerable chaos, available to be exploited by none other than those of us smart enough to do so. Price discovery, for everything from real estate to peaches, will be a matter of making the best deal available, and many of us are adept at deal-making. Government employees may be furloughed, laid off or permanently disenfranchised, their pensions slashed, and other government programs (can you spell FARM SUBSIDIES?) will have to be eliminated in order to cut wasteful spending and/or increase revenue.

At the same time, the government will become more and more dysfunctional, having lost its most basic trapping of power, the consent of the governed, in many places, particularly large urban centers and deep rural communities. If martial law becomes the norm, how long and how well will that be enforced in a country chock-full of gun-toting, liberty-loving individualistic patriots and their new-to-the-party brethren?

There will be chaos. But eventually, there will be peace and a new understanding that the federal government is powerless over the needs of individual states, and even counties and other municipalities. A new form of feudalism or tribalism may be the result, but the bottom line is that the federal government will be a shadow of its former self, individuals and communities will forge new leaderships, apart and away from government, which will (and in many cases, already is) be viewed as not the solution, but the problem.

People will become more self-reliant, industrious and unburdened by regulations and authority. A new America will emerge, one that is less-centralized, more progressive (I know that's a dirty word to some), less encumbered by regulation and overall, more free, and freedom is what America is all about.

Let's get behind our president. NO NEGOTIATIONS. Keep chanting. Keep the government closed. Begin the process of downsizing and prioritizing spending. Stop borrowing. How will the Fed issue new debt-money if the Treasury can't borrow? There will be progress against the Federal Reserve, but not victory, until we rise up and smite them, refuse their fiat and return to a gold standard or gold/silver standard.

Real money. And all because the politicians played a game of chicken which neither can win.

We all have reasons to doubt or criticize the president, but, maybe, just maybe, he's willing to risk his reputation and his life in order to be the transformational figure he promised. I know it's a stretch, but maybe he's a wickedly wise politician and playing the banksters for all they're worth, willing to shut down the government and destroy the economy in order to save it all. What comes out the other side is largely up to him, but also well within our grasp.

THIS is OUR MOMENT. Carpe Diem!

22winmag's picture

Re: Martial Law


For those of you who are confused... real martial law is something that is declared and implemented by the military when the civilian government becomes compromised, incapacitated, or otherwise unable to govern. Real martial law cannot be "declared" by the leader(s) of a civilian government that it still intact and functioning.


So... you may have situations that resemble martial law, but are really just lawless, unconstitutional power grabs, like Lincoln during the Civil War. Get it? Martial law isn't real martial law unless a) the military declares it and b) the civilian government is not intact and not functioning.


It's an important distinction to make, because the people might welcome real martial law, but you can bet if Obama declared fake martial law that it would last about 1 day.


From Wikipedia: Martial law is the imposition of military rule by military authorities over designated regions on an emergency basis. Martial law is usually imposed on a temporary basis when the civilian government or civilian authorities fail to function effectively (e.g., maintain order and security, or provide essential services), when there are extensive riots and protests, or when the disobedience of the law becomes widespread. Fundamentally it is a requirement put on civilian government when they fail to function correctly.

FreeNewEnergy's picture

22winmag, thanks for the comment. However, isn't the president "commander-in-chief of the armed forces? So, he could declare martial law in, let's say, Detroit, and be within his powers, no?

A presidential declaration of martial law for the whole nation, I suppose, would be unconstitutional for various reasons (posse Comitatus among them), since the US government would still be functioning on some basis, but, I believe that the president would do this, despite its non-binding reality. As it is, holding the entire nation under martial law for more than a few days would be nearly impossible. There aren't enough troops loyal to the cause and states would also protest, some of them loudly and by force.

I think there are just too many Americans who don't trust the government and are very individualistic, patriotic and self-reliant to abide by any imposition of martial law for more than a few hours. How the hell is the military going to impose its will on farmers in West Virginia, or Alabama or even New York. Farmers are, and always have been, our best and last line of defense against government incursion.

With the help of millions of small farmers, the nation will survive, and, I dare say, prosper again, martial law or not.

FreeNewEnergy's picture

And, I might add, it wouldn't bother me in the least if the president or any military leader imposed martial law upon some cities, or, at least portions of some urban spaces. Detroit's a good example, but right here in my area (Rochester, NY), they could stop the welfare payments and food stamps and fence off what we commonly call the ghettos or slums and I'd appreciate it. Keep the damn zombies out of my squash patch and corn field!