Politicians in Washington showed no signs of making progress to resolve the US government shutdown and debt-ceiling problems over the weekend. The general market remains vulnerable right now, but the overall strategy is to use this opportunity to enter the market at these lower levels. The longer term Standard Bank Capital Accumulators and Accelerator Investments, remain attractive vehicles to gain equity exposure if the market is flat or higher from initial index levels. Coupling the Standard Bank Structured Products – QPSA and the PII RESI offers an attractive blend of yield and exposure to both the Top40 index as well as the Resource index.
Both Democrats and Republicans were on talk shows over the weekend and neither showed signs of giving ground. House Speaker Boehner seemed to suggest that Republicans want a debate over many areas of spending, such as Medicare and social security retirement payments, and did not mention the Obamacare standoff that dominated the budget discussions up to October 1st. There was some better news with the Pentagon recalling 350k defence workers—which represents nearly half of the 800k furloughed workers. They will return to work today, which help limits some of the economic damage done by the shutdown.
Sticking with the US, the Fed’s advisory council issued its report on the Fed last Friday and reported that the Fed needs to improve its communication with the market. This is not exactly a surprising conclusion given that the Fed has been roundly criticized for events since May, when it warned of tapering that was subsequently not delivered. The council is made up of 12 banking representatives from each of the Fed’s districts. It said that the Fed needed better clarity, consistency and simplicity. It went on to say that the Fed needed to take proactive steps to anchor rate expectations. Whether we will see the Fed do this in some way remains debatable. There have been suggestions from the market in the past that the Fed could make better use of the range of forecasts it compiles of the fed funds rate from its members.
In the UK financial firms reported their best levels of optimism for 17 years according to the CBI. The survey’s optimism level stood at a net 53%. Some of this was down to employment where a net 24% reported increasing staff in the last 3 months, which is the best in 6 years, and a net 14% expecting to do more hiring in Q4. However, a net 10% reported lower business volumes in the past 3 months.
Japan’s coincident indicator slipped slightly in August. It fell by 0.1 point but this was not sufficient for the government to change its assessment, which is that the indicator is still consistent with an improving economy. Any impact on the yen, though, is likely to be very limited as the heightened uncertainty created by the government shutdown will leave the yen as primarily a safe-haven play should the situation deteriorate further.
Through the week we will see non-government data released from the US, with missed government data to follow once the government fires up again. Today sees consumer credit data, which is seen at USD12bn after USD10.4bn the prior month. On Thursday Initial Jobless claims data to be released. In the UK the main focus will be on the BOE rate decision on Thursday, with industrial and manufacturing data out on Wednesday. Locally we see mining and gold production data out this Thursday, as well as manufacturing figures. We anticipate mining production to have a growth of 2.2% y/y in Aug.
Strategic Wealth Solutions is a distributor of niche equity based investments such as Standard Bank Structured products.
