As we head into the final quarter of 2013 and a new month we would ordinarily have expected the main focus to have been on some early signs of a nascent recovery
in some of the weaker economies in Europe as investors get ready for an avalanche of economic data over the next few days.
Despite the well documented problems in Italy and Spain there have been some flickering signs of a pick-up in economic activity
, though it remains uncertain how sustainable the current rebound is.
As it is we have to contend with political brinkmanship and rank stupidity from politicians in both Italy and the US
as they play fast and loose with a weak economic recovery so that they can score cheap political points.
At 5am this morning the US government started to shut down some of its operations for the first time in seventeen years
as Democrats and Republicans engaged in a politically motivated Mexican stand-off over the latest budget proposals.
Now that we are here one has to hope eventually that wiser heads will prevail in this political tug-of-war and that eventually a temporary budget will get passed, before the shutdown lasts too long. The concern is that this fight will coalesce into the separate fight over the raising of the debt ceiling and raise fears of a US default
as political positions become more entrenched.
As for Italian politics, w
hile the weekend ministerial resignations caused ripples in markets yesterday the signals coming out of Rome are a little mixed
with talk of a confidence vote on Wednesday interspersed with reports of significant unease and splits amongst Berlusconi PDL party members about the current turn of events.
There has been talk that some PDL members, unhappy with recent events, might vote against their leader which may well account for the late decline in Italian yields yesterday afternoon. Such are the shifting sands of Italian politics.
In any case on the subject of economic data, we’ve seen a bit of a pickup, particularly in Spain and Italy with respect to recent manufacturing PMI data
, which has improved quite significantly in line with equivalent German measures. The outlier and main concern has been France’s numbers which are expected to continue to remain weak at around 49.5.Spain manufacturing PMI for September is expected to come in at 51.6
, up from 51.1, while Italy is expected to show 51.1
and Germany 51.3.
While these improvements are welcome they only tell part of the story as the release of the latest unemployment numbers paint a particularly depressing picture,
in Spain, Italy and Europe as a whole, with Germany an outlier.
September unemployment in Germany
is expected to remain at 6.8%, but the August unemployment numbers from Italy and the Eurozone as a whole
are expected to remain near record levels at 12.1%. Youth unemployment in particular in Italy is slowly creeping up, around the 40% level, with only Greece and Spain posting numbers in excess of that.
The recent turnaround in the UK economy is once again expected to come under scrutiny
again today with this week’s PMI data expected to give a strong steer into how good the preliminary Q3 GDP number might be later this month.
With recent independent surveys pointing to a continued rebound in the manufacturing sector hopes are high that the recent rise in the manufacturing sector can be maintained.
Starting today with the September manufacturing PMI,
expectations are for a further improvement from August’s 57.2 to 57.5
and the highest reading since March 2011.
In the US
while markets absorb the reality of a government shutdown for the first time in seventeen years, independent data will still get released as normal with the latest ISM manufacturing numbers for September
expected to remain fairly resilient at 55.3, down slightly from 55.7.
It was a particularly strong employment component from this data release last month
that steered markets up a blind alley with respect to last month’s non-farm payrolls report, which confounded expectations by coming in weaker than expected.
– we continue to remain capped at the 1.3570 area and this level continues to remain the main obstacle to a move towards the 1.3710 area. A break below the 1.3450/60 area which acted as support last week would complete a double/triple top formation and signal a move towards the 1.3320/30 level.
– yesterday’s break above the 1.6160/70 area has seen the pound push higher towards the 1.6300 area and the highs this year at 1.6370. The 1.5980 area remains the key support area on any pullback. The risk is that a sustained break below 1.5980 could suggest a move towards the lows last week at 1.5880 and the medium up trend support now comes in at 1.5795 from the 1.4815 lows.
– downward pressure continues to build while below 0.8410 and brings the prospect of a move towards the 0.8280 area, the 50% retracement of the 0.7755/0.8815 up move. Initial support can be found at the lows last week at 0.8350, with interim resistance at 0.8420. On the upside the 0.8470 area remains a key resistance and we need to see a move above the 0.8500 area to retarget the 200 day MA.
– we saw the US dollar briefly dip below the trend line support at 97.65 from the June lows at 93.85, as well as the daily Ichimoku cloud support of the past two weeks. Only a move below this trend line suggests further losses towards the 94.00 area. We need to see a move above the highs two weeks ago at 100.60 to retarget the 103.70 area.
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