Spreadex Market Analysis Update: October, 8 2013

AM Analysis: “Euro markets open cautiously” – Shavaz Dhalla
European markets opened cautiously today as a deadlock between politicians over a compromise regarding the US debt ceiling continued to weigh on investors' sentiment. Although most investors believe that a deal will be reached by the 17th October deadline, investors are still concerned with the impact their portfolios are likely to take in the meantime.

In addition, pressure from China over the possible consequences of a deal not being reached is arguably making matters worse. Up until now, international officials have refrained from voicing their concerns over the crisis. However, when one of the United States’ top lenders announces their dissatisfaction over the current disaster then perhaps this should be more of an incentive for officials to reach a deal.

Nevertheless, it seems Democrats are continuing to call Republicans’ bluff over allowing the US to default by dismissing the possibility of a compromise regarding Obamacare. Only time will tell whether a failure to give ground now will prove detrimental for the world economy later.

PM Analysis: “FTSE 100 hits fresh 3-month lows” – Max Cohen
The FTSE 100 has hit fresh 3-month lows during today’s session after the British Retail Consortium indicated that British retail sales growth has slowed for the second consecutive month in September. Retailers as a result are noticeably weak today with Marks and Spencer losing the most value amongst FTSE 100 constituents shedding over 3 percent by 13:00 BST. Additionally, mining shares are weighing on the headline index, hit by slowing service sector growth in top metals consumer, China.

Broader sentiment has also been dented by the continued U.S. political deadlock, with the second week of government shutdown raising concerns a compromise may not be reached before an October 17th deadline for raising the country's debt ceiling. Markets picked up temporarily yesterday afternoon after President Obama gave a glimmer of hope to investors by making clear that he would accept a short-term hike in the U.S borrowing authority.

Meanwhile, U.S futures have fluctuated between gains and losses as investors weigh up the impact of the government shutdown. The Treasury has made moves to reassure market participants by assuring that all measures to avoid exceeding the borrowing limit by October 17th will be exhausted. As the government shutdown that began a week ago delays the publication of some economic data, investors will turn their attention to companies’ financial results.

U.S foreign creditors have moved to raise pressure on the U.S to resolve the political impasse on its debt ceiling. China and Japan between them hold more than $2.4 trillion in U.S treasuries and are considering the possible impact of any default on its bond holdings. Any failure by the U.S. to honour its debt obligations would damage the dollar’s status as the world’s reserve currency. A shift in asset allocation by China, Japan or other major holders of Treasuries could also possibly push up U.S. interest rates.

[The original articles by Spreadex can be found here.]

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