AM Analysis – “European shares set to open significantly lower” – David White
Equity investors find themselves attacked on more than one front this morning, with the U.S. budget, Italian politics and China being reason enough for an early run to the exit. Shares across Europe are set to open significantly lower in light of the developing news flow.
While this combination of news flow is concerning, the price action following the open will be critical in determining near-term momentum. If, for example, prices are supported and buyers step in, investors will be harder to part from their stock than if the contrary occurred. But either way, Investors have been caught a little off guard.
Unsurprisingly, safe haven assets have been the destination of a lot of the cash leaving risk assets. High quality fixed income, Swiss francs and dollars have been in demand against this sell-off and will continue to be so until a catalyst can stabilise or reverse sentiment.
What certainly won’t help equity bulls is how far valuations are stretched already.
PM Analysis – “Economists and investors scrutinise US budget debate” – Max Cohen
With Republicans and Democrats failing to make concessions over the weekend, the budget debate has been the subject of intense scrutiny by economists and investors alike. With Senate convening at 19:00 BST, U.S lawmakers will have until mid-night local time to approve emergency legislation to keep the federal government operating from tomorrow, the beginning of the 2014 fiscal year. Whilst essential operations would continue, some 800,000 government jobs are at risk of being placed on temporary unpaid leave.
Republicans and Democrats in Congress say they don’t want to close the government, though neither side is budging from their positions to avoid it. House Republicans want to delay President Barack Obama’s Affordable Care Act for a year and make other changes to the health law. Democrats vow not to let that happen.
U.S stock-index futures have consequently slid with the S&P 500 down 15.5 points by 13:00 GMT, however, the index is still trading 3.6 percent higher this month, extending its quarterly gain to 5.3 percent after the Federal Reserve decided against reducing its $85 billion of bond-buying a month. The general consensus amongst economists surveyed is that the Fed will indeed taper bond-buying to some degree in December.
Meanwhile, the FTSE 100 has been led lower by a combination of political unrest in Italy and further worrying data from China. Mining shares have weighed on the headline index after data from China unexpectedly showed near stagnation of private sector factory activity in September. The mining sector is the index's third-biggest and the only one that is down this year. Whilst The sudden departure of five Italian centre-right ministers over the weekend left the government only formally in place, rattling markets and raising the possibility of new elections.
The original article by Spreadex can be found here.
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