It’s one day to go until the US debt ceiling and stock markets have been taking this surprisingly well. US stocks amazingly appear to be heading for a higher open. Indications that the US Senate may be close to a budget deal has boosted spirits but it’s hard to see how this party may last long. After all, even if the Senate gets a deal, they still have to deal with the House where the Republicans have been unable to come to an agreement amongst themselves on what to do let alone with anybody else. Constant strife and political brinksmanship raises that risk that someone will make a mistake and fail to blink at the right time. Yesterday’s Empire manufacturing report indicated the budget crisis has already started to impact the economy and the worst may be yet to come. Fitch ratings put the US under ratings watch negative last night indicating that the budget crisis could undermine confidence in the USD and the creditworthiness of the US government. Currently US stocks appear to be pricing in a deal getting done today or tomorrow. Bears have been sitting on the sidelines afraid of getting caught by a relief rally when a deal gets done. If politicians fail to reach a deal, however, the bears could swiftly return with a vengeance on concerns of wider damage from the impasse. Already signs of renewed concern are starting to creep back into the marketplace The US dollar Index (DXY) has given back much of yesterday’s gains while defensive plays like gold and CHF has started to claw back yesterday’s losses. In other currency action GBP and NZD have been climbing overnight after stronger than expected UK employment and higher than expected NZ inflation have suggested that the Bank of England and RBNZ may stay relatively neutral to hawkish on monetary policy. Over the next 24-48 hours we could see significant swings in both directions across world markets as politicians and traders play Chicken with the deadline. Ostriches who have stuck their heads in the sand over this may quickly find out whether that has been a successful strategy or not, while the Owls who have been watching everything looking for opportunities may find significant ones emerge. Corporate News Intel EPS $0.58 vs street $0.53 Yahoo EPS ex items $0.34 vs street $0.33, announced deal with Alibaba, amount it can sell on an IPO to 208 million shares from 261 million. Guides ex-TAC revenue to $1.19-$1.22B vs stret $1.25B Mattel EPS $1.16 ex items vs street $1.11 Pepsico EPS $1.24 vs street $1.17 US Bank Earnings Bank of America EPS $0.20 vs street $0.19 Comerica EPS $0.78 vs street $0.71 KeyCorp EPS $0.25 vs street $0.23 Bank NY Mellon $0.60 ex items vs street $0.58 PNC Bank EPX $1.69 pre-gain vs street $1.62 Economic News Significant economic announcements released yesterday afternoon and overnight include: UK jobless claims (41K) vs street (25K) US unemployment rate 7.7% as expected UK rolling 3M jobs change 155K vs street 125K and previous 80K Canada manufacturing sales (0.2%) vs street 0.2% NZ consumer prices 1.4% vs street 1.2% vs previous 0.7% South Korea unemployment 3.0% vs street 3.1% Australia Westpac leading index (0.1%) vs previous 0.6% Economic reports due later today include: 10:00 am EDT US NAHB housing market index street 57 2:00 pm EDT US beige book

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