If there is one day the Fed's trading desk actually did want futures lower, if only for purely optical purposes and to at least suggest that the government, and not the Fed, is still in charge of the US, it is the day when the US government - for the first time in 17 years - has shut down. They certainly did not want the S&P to be up nearly 0.5% mere hours after Congress and the presidency confirmed to the world that in a world in which "the Chairman gets to work", a functioning government is completely irrelevant. Yet this is precisely what is going on. What is making matters worse is that on the other side of the world, Japan also finally announced the well-telegraphed sales tax increase to8%, offset by a JPY5 trillion yen "stimulus" which however Japan said, much to the Chagrin of Mrs. Watanabe and a 100 pip overnight plunge in the USDJPY, would be funded not with more new bond issuance (and thus without new "wealth effect" generating monetization). It is unclear just how it will be funded but since increasingly more global fiscal and monetary policy is based on science fiction we know better than to ask.
S&P Futures Don't Budge As China PMI Misses (Again) And US Government On Verge Of Shutdown - Update - Ramp!Submitted by Tyler Durden on 09/30/2013 21:11 -0400
UPDATE: Rumor of Clean CR (unfounded and denied) sparks squeeze in bonds (10Y +5bps) and ramp in stocks (ES +10!) - leaving us wondering how an equity rally will play with the press in the morning if we shutdown?
Given the Senate rhetoric following this House vote - a US government shutdown with all its fire and brimstone that we have been told to expect is nigh; For the second night in a row, Chinese PMI data disappointed with the recovery not as growthy as everyone had extrapolated from the flash data. This is the smallest rise in China's official PMI in 4 months - just 0.1 above August's at 51.1. What is the reaction of futures markets? nothing...
There is a considerable amount of debate in alternative economic circles as to whether a federal government shutdown would be a “good thing” or a “bad thing”. Sadly, a government shutdown is sizable threat to the American financial system, and few people seem to get it. Perhaps because the expectation is that any shutdown would only be a short term concern. And, this assumption might be correct. But, if a shutdown takes place, and, if “gridlock” continues for an extended period of time, We have little doubt that the U.S economy will experience renewed crisis. Here's why...
The USA is turning into a sorry state of affairs. But, it only has itself to blame. The successive governments for the past decades have done nothing but increase the debt ceiling in the country.
The financial crisis of 2008 killed a lot of things. It killed the line of credit, it killed the finances of millions of people around the world, it ousted governments and relegated leaders to the back offices and it was the kiss of death to a failed system and brought down entire states.
In the upcoming week markets will continue to focus on these fiscal issues in the US, now that a temporary Government shutdown past Tuesday is assured. Still on the fiscal side but outside the US, look forward to Prime Minister Abe announcing his final decision on the VAT hike as well as unveiling a widely anticipated economic stimulus package. Finally, fiscal policy also played a role in the Italian political instability with four ministers resigning from the coalition Government. The backdrop to these events is a rapid deterioration of the political climate after former PM Berlusconi was convicted of tax evasion by a High Court.
- Government Heads Toward Shutdown (WSJ), First U.S. Shutdown in 17 Years at Midnight Seen Probable (BBG), Congress in game of chicken (RTRS)
- Italian Premier Pursues Last-Ditch Rescue of Government (WSJ)
- Election risk rattles Italian government bonds (RTRS)
- Obama and Ryan Stay on Sidelines on Budget (WSJ)
- Volcker Rule Costs Tallied as U.S. Regulators Press Deadline (BBG)
- Faltering Chinese Factory Growth Adds to Rebound Fears (FT)
- Health Law Hits Late Snags as Rollout Approaches (WSJ)
- Apple Overtakes Coca-Cola as Most Valuable Brand, Study Finds (BBG)
- Euro-Area September Inflation Slows More Than Forecast on Energy (BBG) - Puting will fix that shortly
European equities trade negatively as political tensions on both sides of the Atlantic dampens risk appetite and a lower than expected HSBC manufacturing PMI figure from China further weighs upon investor sentiment. In the US, government is on the precipice of the first shutdown since 1996 after House Republicans refused to pass a budget unless it involved a delay to Obama’s signature healthcare reforms. If the Republicans follow through with their threat a shutdown will occur at midnight tonight. As a result a fixed income in the US and core Europe benefit with investors wary of the immediate harm a shutdown will do to confidence in the economy.
"One day this whole credit bubble will be deflated very badly - you are going to experience a complete implosion of all asset prices and the credit system..."
Don't Blame Free Market Capitalism ... We Haven't Had It for a While
The Egyptians dispensed with the life of their slaves in the construction of the pyramids as if they were nothing but throw-away products before that had even been invented in the modern day and age in which we live.
Financial volatility since Federal Reserve Chairman Ben Bernanke’s announcement in May that the Fed would “taper” its monthly purchases of long-term assets has raised a global cry: “Please, Mr. Bernanke, consider conditions in our (non-US) economies when you determine when to end your quantitative-easing policy.” That is not going to happen. The Fed will decide on monetary policy for the United States based primarily on US conditions. Economic policymakers elsewhere should understand this and get ready. All of this is just hard reality. The best way to prepare is to limit the use of credit in boom times, prevent individuals and companies from borrowing too much, and set high capital requirements for all banks and other financial institutions. The Fed surprised markets last week by deciding to maintain its quantitative-easing policy. But that underscores a larger point for non-US economies: You never know when the Fed will tighten. Get ready.
Fingers of Instability
‘Tapering’ may be put off indefinitely due to the very fragile state of the massively indebted U.S. economy. This means that interest rates must be kept low for as long as possible, leading to money printing and electronic money creation on a scale never before seen in history.
This will inevitably lead to higher gold prices - the question is when rather than if.
- House GOP banking on Plan C (Politico)
- Pimco shook hands with the Fed - and made a killing (Reuters)
- BlackBerry's Torsten Heins has a $55 Million golden parachute (Reuters)
- JPMorgan Urged to Pay More in Mortgage Deal (NYT)
- Soros Adviser Turned Lawmaker Sees Crisis by 2020 (BBG)
- U.N. Members Agree on Syria Disarmament (WSJ)
- U.N. Says Humans Are 'Extremely Likely' Behind Global Warming (WSJ)
- The non-falsifiable threats emerge: Shutdown Would Shave Fourth-Quarter U.S. Growth as Much as 1.4% (BBG)
- Swaps Rules Worry Industry: Coming Regulations Have Market Players Concerned About Possible Disruption (WSJ)