The midnight deadline arrived, and the government shut down is officially underway. But the reaction by global asset markets was sanguine, after 2 days of declines. As I discussed in yesterday’s Macro Wrap, some market participants view the likelihood of a debt ceiling resolution as higher now that the government has shut down.
- No Negotiations Currently Planned, But Markets Expect Eventual Deal – The obvious expectation among market participants is for a budget deal to be reached sooner rather than later as Congress starts to feel the heat from the shutdown. SPX futures have been higher throughout the overnight session, though the Friday gap at 1686.40 has not yet been filled:
- Asian Stocks Mostly Green, Led by Southeast Asia – Economic data was actually a bit weaker than expected in Asia (Japanese Overall Household Spending was -1.6% vs. 0.2% expected and South Korean exports were -2.5% vs. +1.5% expected), but stock indices were almost all higher. Thailand and Indonesia were the best performing markets, both up 1-2%. China was closed.
- European PMI data in line, German employment weak – European equities followed Asia into the green. Italy was the best performing market, up around 1%, while Britain’s FTSE 100 index was slightly lower. European PMI data was right in line (51.1 vs. 51.1 expected), while Germany had its largest increase in unemployment since 2009.
- Treasuries Lower, Dollar Lower, Commodities Mixed – U.S. Treasuries sold off between 9:30 pm and 10:30 pm EDT, and have not recovered. 10 year yield up 4 basis points. The dollar is also lower vs. most currencies, most notably against the Aussie dollar, which is up more than 1% after somewhat hawkish commentary from the head of Australia’s central bank. Gold and copper are 0.5% higher, while oil is 0.3% lower.
- When Will Payrolls Be Released This Week – Given the shutdown, the economic releases in the U.S. might be moved forward or pushed back. The ISM Manufacturing is the main release today, expected at 10:00 am EDT. The At-the-money SPX weekly straddle implies a break-even move of about 25 points by Friday from yesterday’s close.