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US Government shut down impacts global markets

Posted by Marge Maresca on Oct 1, 2013 7:08:00 PM

CBA Economics: Daily Alert

US Government has shut down. US treasury yields & USD higher. AUD at USD0.9395.

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In US economic news, the ISM manufacturing index lifted from 55.7 to 56.2 in September, above forecasts for a result near 55.0. US chain store sales rose by 3.8pct in the latest week on a year ago, up from the 3.6pct annual gain in the previous week.

The US Government has shut down for the first time in 17 years after Congress failed to approve a spending bill for the new financial year.

European shares rose on Tuesday. Senior members of Silvio Berlusconi's centre‑right faction said they would support the government in a confidence vote. The Euro‑zone manufacturing index expanded for the third straight month. And investors seemingly shrugged off news of the US government shutdown. The FTSEurofirst 300 index rose by 0.7pct, while the German Dax rose 1.1pct and the Italian sharemarket lifted by 3.1pct. The UK FTSE lost 2.2 points or less than 0.1pct. Mining shares fell in line with base metal prices with Rio Tinto down by 0.9pct in London trade while BHP Billiton lost 0.8pct.

US sharemarkets rose on Tuesday as investors bet against an extended closure of US government offices and services . The Dow Jones closed higher by 62pts or 0.4pct after trading in a range of ‑19 points to +79 points. The S&P 500 was up by 0.8pct and the Nasdaq gained 46pts or 1.2pct.

US treasuries fell modestly on Tuesday (yields higher). Economic data was firmer than expected and investors seemingly shrugged off the US government shutdown, moving away from bonds and gold to equities. US 2yr yields rose by 1pt to 0.332pct and US 10yr yields rose by 3pts to 2.643pct.

The US dollar lifted from lows against major currencies over the European and US sessions on Tuesday as investors mulled the impact of the US government shutdown. The Euro eased from highs around US$1.3585  to near US$1.3520 and ended US trade near US$1.3535. The Aussie dollar fell from highs near US94.35c to US93.80c before ending US trade near US93.95c. And the Japanese yen held between 97.66 yen per US dollar to JPY98.26, ending US trade near JPY97.82.

World oil prices fell again on Tuesday on uncertainty about the US government shutdown. Investors generally expect the shutdown to trim energy demand in the US. Brent crude fell by US43c or 0.4pct to US$107.94 a barrel while US Nymex fell by US29c or 0.3pct to US$102.04 a barrel.

Base metal prices fell up to 2.6pct on Tuesday with lead down the most and more than reversing the previous day's gains. Gold fell again on Tuesday as investors seemingly shrugged off the US government shutdown. The Comex December futures price lost US$32.40 an ounce or 2.4pct to US$1,294.60 per ounce. The iron ore price was unchanged at US$131.40 a tonne with Chinese markets on holidays.

Ahead: In Australia, international trade and building approvals data is due. In the US, the ADP
employment index is released with the ISM New York index.

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