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- Asian markets closed down. Japan’s Nikkei fell -1.22%, Australia’s S&P/ASX 200 finished -0.90%, and Korea’s Kospi fell -0.13%. European markets were lower, with Germany the leading laggard at -0.95%. U.S. futures were pointing down nearly a full percentage point.
- The U.S. government has entered its seventh day of shutdown. However the bigger story is arguably the impending debt ceiling, which continues to go unresolved. With its borrowing capacity limited, the U.S. Treasury Department may go into default and eventually be forced to prioritise its payments.
- Things would get much worse if the debt ceiling goes unresolved for an extended period of time. “If the debt limit is not raised before the Treasury depletes its cash balance, it could force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling,” wrote Goldman Sachs’ Alec Phillips and Kris Dawsey in a note distributed to clients on Saturday night. “We estimate that the fiscal pullback would amount to as much as 4.2% of GDP (annualized). The effect on quarterly growth rates (rather than levels) could be even greater. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed very quickly.”
- The Pentagon ordered most of its 400,000 furloughed civilian employees back to work this weekend, citing a law passed just before the shut down that ensured military members would be paid on time and which “left room for the Pentagon to keep on the job those civilians who provide support to the military.”
- The Fed will release August’s consumer credit data at 3 pm today. Consensus is for expansion of $US12.9 billion versus $US10.4 billion in July.
- Bank of America trimmed its U.S. GDP forecast to 1.7% in Q3 versus Q2’s 2.5%, and 2.0% for Q.4 from a prior estimate of 2.5%. “Both we and the consensus have had a baseline forecast that the government shutdown will be too short to impact 4Q GDP growth… However, with the shutdown approaching its one-week anniversary and with both sides digging in their heels, that assumption is looking increasingly untenable. Our forecast is quickly becoming a ‘best-case scenario’.”
- The World Bank has cut growth forecasts for China and East Asia, citing the Middle Kingdom’s ongoing shift away from exports and subsequently weaker commodity prices. The Bank now sees China growing at 7.5% in 2013 versus its April 8.3% estimate and a more recent 7.75% outlook. The country will see 7.7% growth in 2014, a 0.3-point reduction. East Asia GDP was lowered to 7.1% for 2013 and 7.2% for 2014, down from 7.8 per cent and 7.6 per cent, respectively, in April.
- Sentix’s Eurozone’s confidence reading was positive for the second month in a row, thought it missed expectations. The print came in at 6.1 versus 8.0 forecast. But it’s the first time there have been two consecutive positive readings since 2011.
- Fitch says global credit growth is improving, with real lending growth expected to expand 4% this year, versus 2.5% in 2012, “as credit contraction in the developed world and emerging Europe ends while EM growth continues, albeit slowing.”
- Hedge fund heavyweight John Paulson told the FT he is now all-in on Greece’s banking sector, having taken substantial stakes in Piraeus and Alpha banks. “[Both] are now very well capitalised and poised to recover [with] good management.” He added, “The Greek economy is improving, which should benefit the banking sector.”
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