The US has now pulled back from the brink of default again. This would have two effects on the economy. The first is having almost 400k government workers furloughed without pay for just over two weeks. The second is more a psychological impact on business and consumer confidence that results from both the shutdown and debt ceiling impasse. The overall strategy to trade this kind of market is to use this opportunity to enter the market at these lower levels. The longer term Standard Bank Capital Accumulators, remains attractive vehicles to gain equity exposure if the market is flat or higher from its initial index levels. Coupling the Standard Bank QPSA or and Strategic Wealth Solutions Lighthouse Investment and the PII Resi offers an attractive blend of yield and exposure to both the Top40 index as well as the Resource index.
There’s little on the calendar today and, besides, the market will be looking instead to the return of US government and Fed data, starting with September payrolls tomorrow. The problem with US data is that the market is bound to be a bit confused because of the government shutdown. Data that references the pre-October 1st shutdown period, like payrolls, might be taken with some caution in case post-October-1st data slumps on the shutdown impact. On the other side of the coin, more recent private survey data, which looks as the post-October 1st environment, might be similarly dismissed as too negative given that the politicians have worked out a deal that’s likely to lift sentiment in November’s data. In short, it leaves the market in no-man’s land right now and, for this reason, we’re a bit sceptical that it will give the market significant direction.
US existing home sales are expected to fall back after rising to a 5.48mn rate in August. The September consensus is for a 5.30mn rate. Home sales have risen very sharply in the last few months and hence a slide to 5.30mn in September—should it occur—should be seen in this light. Last week’s Beige book suggested that housing activity still remains pretty solid. The issues around tapering could have some bearing if mortgage rates rise but we’re generally optimistic that home sales will still hold up through this potential difficulty. As for market impact, though, we don’t expect a significant response as the market eyes tomorrow’s payroll release.
Moving on to other data releases: Japanese trade data for September was released overnight and saw exports come in at a disappointing 11.5% y/y (Bloomberg consensus 15.6% y/y). Imports climbed 16.5% y/y, resulting in a JPY932 billion trade deficit — the 15th consecutive month of trade deficits and the longest streak since 1979. Locally we see the release of CPI data on Wednesday, prior MoM 0.3% and YoY 6.4%.
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*Article Courtesy of Standard Bank CIB