Daily Market Report 17/10/2013

A bit of relief in the markets yesterday after the Republicans last night closed in on a deal with the Democrats to extend the US debt limit and end the current government shutdown.

The deal will allow borrowing to rise only until 7th February, with full federal government funding provided until 15th January. There are talks scheduled in mid-December for a longer term deal. The Senate and House of Representatives are expected to vote this through early morning in the US.

Whilst the immediate concern has been relieved, the deal that has been agreed has been viewed as a temporary solution. Stock markets and the US dollar have weakened off as a result as the market view is we would expect more conflict when talks resume in December.

The impact of the shutdown on US GDP is also being digested by the market. According to rating agency S&P, about 0.6% has been shed off 4th quarter growth figures, equating to losing US$24bn from the economy. This will of course give the Federal Reserve less of a reason  to taper quantitative easing, perhaps pushing it back further from recent forecasts of tapering to occur in December.

For the time being we would expect GBPUSD to remain bounded by the highs of October 1st.

The pound strengthened in early morning trade yesterday on the back of strong claimant count figures. It was expected there will be a 25,000 reduction, however we actually saw a reduction of 41,700. We also had unemployment figures remain stable at 7.7% which what was forecasted.

In the Eurozone we had inflation figures out which came in as expected at 1% year on year.

So the day has begun with the US dollar on the back foot and the pound continuing to strengthen. Retail sales for the month of September exceeded expectations rising to 2.2% year on year and 0.6% month on month. The data suggests that consumer spending is on the rise and thus should support growth for the UK economy.

The only other data we have is initial jobless claims from the US which is expected to show the number of people filing for jobless claims fell by 17,000.

Key Announcements:

13.30pm – USD – Initial Jobless Claims: Expected to fall by 17,000.