Europe to open higher as S&P sets a new record
European markets look set to open higher this morning after another record close on the S&P500 last night, while Chinese economic data came in pretty much in line with expectations, reinforcing the hope that the slowdown seen earlier this year is firmly in the rear view mirror and that the Chinese economic rebound will continue to gain traction into year end.
Chinese Q3 GDP came in at 7.8%, rising from 7.5% in Q2 with industrial production for September coming in at 10.2%, a slight dip from Q2’s 10.2%, but retail sales did slip slightly coming in at 13.3%, below expectations of a rise to 13.5%. This does raise a slight question mark over the pace of rebalancing of the Chinese economy as it seeks to boost domestic consumption so that it is less reliant on its exporting capability in a global economy that is currently exhibiting some signs of an economic slowdown.
The fact that we finally overcame the not inconsiderable obstacle of the US debt ceiling roadblock this week didn’t really appear to faze markets too much as was seen by the lack of any significant downward pressure on stocks this week. That being said the removal of this pressure point in the short term does allow investors to focus on the more mundane aspects of Q3 earnings and the outlook for Q4.
Even allowing for any damage to the US economy the consensus appears to be that any negative effects may soon be put to one side
That is the optimistic view and one that seems somewhat naïve, given that the problem has merely been deferred. President Obama may have indicated that next time needs to be different, and one hopes it will be, but the prospect of a repeat of the past few days events is likely to keep consumers cautious in the lead up to year end and into the New Year.
After all who is going to go out and spend a lot of money if there is even the remotest possibility of another government shutdown in mid January, and the possibility of government layoffs again?
As a result Q4 is likely to be somewhat subdued for the US economy as markets assess the damage to the economy in Q3. The likelihood of the Federal Reserve tapering its asset purchase program before the next debt ceiling showdown is also much more remote as well given the antagonisms and divisions raised by this fight.
Speculation about future Fed action will no doubt be the main point of interest next week in any case when all the economic data that was delayed by the government shutdown gets pushed out next week, with Tuesday the main focal point with the release of the delayed September employment report.
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