aving seen US markets close sharply lower last night we can expect to see a similarly lower open this morning in Europe.
While European markets have by and large held up fairly well given the circumstances in the US, economic data here continues to struggle to impress.
Today's August German factory orders are expected to have rebounded slightly
from their plunge in July, but are still only expected to rise 1%
Despite the increasing anxiety about the political situation in the US there still remains an underlying conviction that for all the posturing of US politicians a deal will ultimately get done.
We've already seen what could be a slight shift in the Democrat position with the President indicating that he might accept a short term increase in the nation's borrowing authority in order to avoid a default.
While this might be welcome in the short term it would only serve to shift the problem slightly further out into the future. It certainly doesn't resolve it and markets would simply have to go through this entire rigmarole all over again, further down the line.
The question remains as to when, and more importantly at what cost to the US's international reputation
, with both China and Japan expressing their concerns about the political deadlock, and the value of their investments.
Given the deeply entrenched positions of both parties
there remains the distinct possibility that any deal could well get done after the 17th October deadline, which is likely to increase market uncertainty even further, and likely to put the US's triple "A" rating at risk with both Fitch and Moody's.
Standard and Poor's downgraded the US
two years ago as a result of the last debt ceiling shambles.
Amidst all the political noise on Capitol Hill investors will also have something else to focus on with the beginning of Q3 earnings season
, which is set to get underway today with Alcoa's results after the bell tonight.
This will be the company's first earnings announcement since the company lost its place in the Dow Jones industrials but is no less important for its place as a bellwether of commodity demand.
Expectations are for Q3 profits of $0.06c a share on revenue of $5.71bn.
While demand is expected to have held up well given the sales of items like new cars, the lower price of aluminium could well have impacted on margins.
Unlike previous earnings seasons this quarter has seen expectations lowered considerably given some of the recent patchy data out of the US,
and the slowdown in the third quarter.
This could well see some companies struggle to meet expectations
. We've already had warnings from a number of major US retailers, like Target and Wal-Mart when they downgraded their outlooks for 2013, at the end of Q2.
Any earnings slowdown is likely to see significant focus on tomorrow's Fed minutes
, however these are likely to be somewhat dated given recent events. The day after last month's Fed meeting St. Louis Fed President James Bullard told Bloomberg that the taper/no taper decision was finely balanced.
He would struggle to make that argument now which suggests that irrespective of what the minutes suggest, the prospect of tapering is likely to be put back to December at the earliest.
- stuck in a range for now with sellers towards the highs this year above 1.3650. We do need to be aware of the bearish daily candle on Friday which suggests we could get a move back lower towards the 1.3450/60 level. Only above the 1.3710 level would argue for a move towards the 1.4000 level. A break below the 1.3450/60 area which acted as support last week would signal a move towards the 1.3320/30 level.
- having failed to break below 1.6000 and more importantly the 1.5980 area we saw a nice pullback towards 1.6100. We still need to be aware of last week's bearish daily candle patterns which could limit the upside. There remains significant resistance through 1.6300 with trend line resistance at 1.6330 from the 2009 highs at 1.7045 as well as the highs this year at 1.6370 big chart points. The risk is that a sustained break below 1.5980 could suggest a move towards the lows two weeks ago at 1.5880 and the medium up trend support now comes in at 1.5865 from the 1.4815 lows.
- the inability to break above down trend line resistance at 0.8470 from the 0.8760 highs keeps the onus on the downside and a retest of the 0.8400 area. The expectation is still to see a move towards 0.8280, but we need stay below the 0.8500 and the 200 day MA.
- the US dollar continues to closing in on the 200 day MA at 96.70 having broken below trend line support at 97.00 from the February lows at 91.05. A break of 96.70 suggests the potential for further weakness towards the 94.00 area. We need to see a move above trend line resistance at 98.25 from the highs in September at 100.60 to stabilize and retarget the 100.00 area.
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