While the JSE has had a good run in recent weeks, the market has begun pulling back on news that the US government might lay off 1mn government workers temporarily without pay. The current instability in the US, could provide investors with an attractive entry. We hold firm on our view of investing in the medium to longer term Standard Bank Investment Products, utilising the 36-60 month PII and CAI structures to provide enhanced potential returns. Coupling the QPSA with a longer term PII or CAI remains an attractive strategy for investors looking for short term liquidity at an enhanced yield..
US lawmakers made no progress over the weekend in their attempt to stop a government shutdown from midnight tonight. It would be the first shutdown since 1996 and could see around 1mn government workers laid off temporarily without pay. It seems, at this late stage, that the best we can hope for is that both houses pass a stop-gap bill which lasts for a short period of time, perhaps a week, or so, to allow both sides to continue talking—and the government to remain open. But clearly even this won’t provide much of a lift to financial assets and we suspect that markets will stay under a cloud in coming days as the uncertainty continues.
China’s HSBC manufacturing PMI was revised down for September. The flash estimate showed a rise to 51.2 from 50.1 in August. But the rise has been whittled down and the final figure now stands at 50.2. Most of the weakness was in domestic demand as new export orders rose to 50.7 from 47.2. The official PMI is released tonight, it is seen rising to 51.6 from 51. As it is based more around larger companies it might be a bit more robust than the HSBC survey, but we still see a downside risk to the consensus. Japanese industrial production fell 0.7% in August, which was worse than the 0.4% decline anticipated. However manufacturers do see a rise of 5.2% in September and 2.5% in October.
In the UK, the government has bought forward the start of the help-to-buy scheme for house buyers. It was due to start in January but will start in a few days. It seems a political ploy by the government to hit back against some of the more populist policy plans put forward by the opposition Labour Party in its conference yesterday.
In other news, Euro zone CPI data should show another fall in the annual rate in today’s flash estimate for September. The consensus is for a fall to 1.2% from 1.3% last time. We think the risks lie to the downside. We’ve already seen some national data for September, with much of it showing roughly flat prices in the month. However, Italy’s CPI rose around 2% in the month—as it normally does each September — and that gives the euro zone data quite a lift. Nonetheless, we still feel there’s a downside risk to the numbers relative to the consensus. That’s not going to impact the prospects of early monetary ease in our view. The ECB meets again this Wednesday and while the backdrop of low—and falling—inflation should contribute to easier monetary policy in the future we doubt that it will be this week.
It’s a key week for US data, what with payrolls at the end of the week. Today kicks off with the Chicago PMI. This past year has seen the PMI bounce around quite wildly, without any clear trend. The consensus for today is 54.3 after 53 in August. Locally this week kicks off with South African budget and Trade balance data releases at 2pm today.