US And European Futures Rebound, But Debt Ceiling And Economic Data

Democrats and Republic are putting the fragile recovery of the US economy at risk by not resolving the political gridlock. It seems that the Treasury could run out of options, as we approach towards the 17th of October. Perhaps, the only two options which treasury would have will be equally difficult and depraved for the economy. The first option would be to prioritize the debt payment for the big ticket items. Given that the final staggering bill amount is $360 billion and the inflow for the same period is only $154 billion, the task would be how to fill the rest of the shortfall. Therefore, the agency would be antagonized with a perplexing situation about what to pay and what not to pay. The second option would be simply delay the payment for this debt.

However, you can argue, that the other options on the table could be to sell the gold and mortgage-backed securities, however, history tells us when a similar situation was confronted in 2011 by the treasury, they chose to delay the payment.

Berlusconi ended the circus show but still not plain sailing for Letta
On the European front, Berlusconi ended the Italian circus after hitting the brick wall by announcing his support for Enrico Letta which pushed the FTSE MIB towards it fresh two year’s high. But, it is extremely foolish to think that Mr Letta has a plain sailing in front of him. Let’s not forget that the country is facing an extremely high level of unemployment, and it is still in recession. During the previous quarter, the GDP for Italy contracted by 0.3%. Therefore, Mr Letta could face further political surprises from Mr Berlusconi when it comes to raising the tax, cutting the budget.


The ECB is full with options
While, the ECB president Mr Draghi did not bring any surprise during his well written speech which he delivered yesterday, and when asked to comment on Italy’s political situation, he said Eurozone is more resilient today than it was, and this is due to the fiscal credibility and the ECB’s response last year. His confirmation that the ECB is full with the tools of stimulus packages to support the weak and fragile economy, but not pulling the trigger on any one of them pushed the euro higher, against the basket of major currencies. The immediate concern is the strength of the euro could certainly hurt the weaker economies.

Services PMI data could raise the expectations for 3Q GDP for the UK
The FTSE 100 is also trading higher ahead of the important economic data- Services PMI which is due at 08:30 GMT. The PMI data is expected to show a strong reading while the expectations are for 60.5 which is the same as August. A stronger reading Services PMI could certainly raise the expectations for the third quarter GDP to 1%.

Only ISM data due today while the US shutdown continues
US futures are trading mildly higher as the battle in Washington continues in between the Democrats and Republicans. President Obama’s last night meeting once again turned into a name calling game. In the absence of Fridays non-farm payroll data due to a government shutdown, the ADP report took more weight among investors, yesterday. The disappointing number released yesterday for this report confirmed that there may not be any tapering till the end of this year. Moreover, there is more confirmation if we are going to get the weekly unemployment claim report, however the ISM manufacturing PMI data will be released at 14:00 GMT and the expectations are for 57 which is slightly lower than the August number.

Currency
The EUR is trending up against the dollar while the CHF and DKK are trending down against the dollar on an intra day basis.

DISCLOSURE & DISCLAIMER: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.

by Naeem Aslam