Europe Lower As Shutdown Grinds Interminably Onwards

As the US shutdown continues, with very little news flow within to suggest an imminent aspect change, the market remains firmly sat on its hands with the occasional foray into safer haven assets. The general market mood is one of sanguine resignation; nothing will change until the politicians get scared.

Whether that’s via a scolding from the Fed, IMF, World Bank, the US electorate or a 300pt dip on the Dow Jones, a resolution will not be forthcoming unless the men and women of this 113th Congress – in the words of my old man – “Wind their neck in, pull their fingers out and start sparking”.

European markets are expected to open lower as a result, as we open up Tuesday’s trade. Those hopeful of a deal are unwilling to throw too much at markets for fear of a politician showing himself to be truly a muppet, while those of a bearish disposition are fearful of a sudden deal and a relief rally that carries them out kicking and screaming.

Overnight data from the UK has once again seen a moderation of the recent economic exuberance around Great Britain’s economy. Retail sales, as surveyed by the British Retail Consortium, rose at their slowest level since Easter. As we pointed out on Friday, the services sector is benefiting from business-to-business and housing market related growth but consumer facing portions of the sector are still finding life a struggle.

The pressure on consumers is the obvious factor here. It will continue as long as wage negotiations fall short of price increases and sets retailers up for a fraught Q4 run into Christmas.

Another overnight release has caused some ructions in Asia. The latest services PMI reading from China, came in below recent trend movements; 52.4 vs. 52.8 previously with anything above 50.0 denoting expansion. You would have to say that while this portrays a recovering economy following the travails earlier in the year, it shows an economy that needs structural reforms to solidify a base level of forward expansion.

Australian business confidence has increased to the highest level in 3.5yrs overnight as the majority result of the election, alongside promises of further tax cuts on business, encouraged companies. We would caveat this data by saying that unless employment improves, then this will prove to be a short-term blip and should we see the jobs market slip further, then further RBA interest rate cuts are on their way.

With the shutdown obviously still affecting the data calendar out of the US, we are looking forward to today’s German factory orders announcement that should show a rebound from last month’s near 3% fall following an aircraft trade show, artificially boosting the numbers in the month previous.