If current political conditions in the States hold the next twenty-four hours investors can expect volatile global equity markets on Monday. As last week came to an end there was a hope of progress in Washington regarding the budget crisis, but as of early Sunday morning the President and Congress have NOT found common ground. Meaning that optimism that came into the broad markets on Friday will be washed away and as the calendar makes its way towards the so-called deadline coming later this week, investors will begin to show their displeasure and weigh their risk and dangerous days could be ahead for Wall Street and others.
While the Federal Reserve appears to have its next Chairperson in order with the nomination of Janet Yellen, this news has been cast aside by the ‘Russian roulette’ type of political game taking place in D.C. as Democrats and Republicans inch closer to the edge and wait for the other side to give in. As of this Sunday morning it appears both sides are intent on carrying out the government shutdown to the last possible moment. Meaning that while most people believe that the politicians will eventually find some type of working agreement, Washington will likely wait until a last minute resolution is needed in order to make sure the U.S. makes its debt payments which are approaching – and if politicians don’t create a resolution things could get very interesting.
The crisis between Congress and the President – with all media hyperbole aside – will not be looked upon fondly by investors, nor nations, who have growing doubts about the ability of the U.S. government to manage its affairs. Which brings us back to the nomination of Janet Yellen and a seemingly definitive vote of approval towards current monetary policy and an acknowledgement that dovish philosophy will continue from the Federal Reserve.
Data from the States has been rather negative regarding consumers the past couple of months. This continued on Friday when the University of Michigan’s Prelim Consumer Sentiment reading was published and missed its estimate. Jobless numbers from the States have not exactly been a shining beacon. While the Official Unemployment Rate has been improving statistics show that the jobs added are not stellar. With the government shutdown having been in effect, it will have a negative impact on Unemployment Claims and the jobless rate, yet supposedly improve when the shutdown ends. However, for the conspiratorial minded, it could provide an excuse to the government and Fed to highlight job weakness yet again and further reasons for avoiding a tapering of current monetary policy ‘just a while longer’.
Gold has been on a one way decline the past week. As of this weekend the price of the precious metal is near 1268.00 USD and hovering around important support levels. Crude Oil has continued to range trade near its lower short-term values. WTI as of this writing is near 102.00 a barrel and still looks to Digital Markets Advisor like it is priced a bit too dearly.
The EUR and GBP both traded slightly lower against the Greenback on Friday. As Monday’s markets open it will prove more than interesting to see how sentiment affects FX. The Single Currency and Sterling both remain near the higher realms of their strong trends and with the U.S. government shutdown continuing and the nomination of Janet Yellen official for the Fed helm, the USD is likely to continue to display a rather negative outlook this coming week.
China will be issuing money ratio numbers early this week via Money Supply, New Loans, and Foreign Direct Investment, and on Friday GDP and Industrial Production data will be released. The U.K. will issue inflation data and Germany will present their ZEW Economic Sentiment reading on Tuesday. The story from the States will continue to be the government shutdown and the venom which is spewed by politicians in Washington as the deadline inches closer. And if what has been largely a staged political event starts in earnest to become a real crisis if it is not managed properly, the broad markets could become dynamic.