By Greg Peel
The Dow fell 159 points or 1.1% while the S&P lost 1.2% to 1655 and the Nasdaq dropped 1.9%.
Obama says he will negotiate spending cuts as soon as the Republicans pass the budget and debt ceiling increase. Boehner says the Republicans will pass the budget and debt ceiling increase if the president negotiates on spending cuts. Obama says he has the numbers in Congress to pass the bills anyway. Boehner says he doesn't.
The shutdown now moves into a second week.
As the clock ticks down to the debt ceiling deadline, it has been noted that even if Obama were to bow and agree to negotiate spending cuts, the last few years have told us that there is no way on God's green earth the two parties would be able to reach an agreement in the meantime. They never have. Theoretically, the US government has not had a budget for five years but rather an agreement to extend until cuts can be agreed upon. No doubt the Republicans had previously assumed they could extend through to a 2012 election victory. What now?
It's beginning to appear Wall Street is becoming just a little more nervous. Dismissal has given way to concern, although most still believe a resolution will be found. If the debt ceiling is not raised by October 17, the US government will not immediately default on all its debt. First up, it would not be able to honour short term T-bills. The one month bill doubled in yield last night to 0.28% -- its highest level since 2008.
By contrast, the ten-year yield went nowhere, and is still sitting around 2.63%. Indeed, outside of US short-end debt and stocks, financial markets have simply gone quiet as they wait out the games in Washington. The US dollar index was up slightly last night to 80.01. Gold fell US$3.80 to US$1318.80/oz. The Aussie is yet again steady at US$0.9433.
The Chinese returned to the metals markets after their holiday, and little happened. Base metals were mixed, with aluminium, lead and zinc up a bit and copper, nickel and tin down a bit. Spot iron ore rose US20c to US$131.70/t after a week's hiatus.
Brent crude rose US48c to US$110.13/bbl and West Texas rose US49c to US$103.52/bbl.
So it's the US stock market taking the brunt. The falls so far have been relatively steady ? triple-digit Dow stuff but no major collapse as yet, and the pullback from the September 18 all-time high in the S&P is now 4%. That's not an official "correction", nor yet up to the 5-7% pullbacks that peppered the rally from 2009 but has yet to eventuate in 2013. Indeed, commentators have been calling for, wishing for, hoping for a pullback since Wall Street started running hard last year. It hasn't happened, so maybe Congress is actually doing the market a favour. The VIX has hit 20, which is the line at which complacency begins to waver.
Perhaps this is the pullback needed, and on the assumption a resolution will be reached, a great basis for the next leg up.
Bridge Street has proven even more resilient. The ASX 200 has fallen only 3% from the peak over 5300 and yesterday held its ground fairly well once again. HSBC's read on China's services PMI provided little incentive, showing a fall to 52.4 from 52.8 when Beijing's number suggested a rise to 55.4 from 53.9, but HSBC was trumped by NAB and the local business confidence survey for September. The survey showed an improvement, but still a weak reading, on current conditions, but a huge jump in confidence post election.
The business conditions index rose to minus 4 from minus 7, below the historic average of zero, but the business confidence index jumped to plus 12 from plus 4. It's the highest reading since May 2010 and confidence has not seen an increase above the historic average of plus 5 since May 2011.
Things are looking a little less resilient for stocks this morning, with the SPI Overnight down 37 points or 0.7%, although it has to be said there's been little correlation between the SPI Overnight and the ASX 200 close of late.
Westpac will release its consumer confidence survey today, so Bridge Street will be looking for the same sort of spike. Wholesale trade numbers won't be released in the US, but the minutes of the last Fed meeting should be, given the Fed is officially a private company.
Oh goody, instead of boring ourselves rigid over the shutdown tomorrow we can return to bore ourselves rigid over the tapering debate.
Rudi is in Melbourne and will not be appearing on Sky Business as usual tonight.