Markets take a breather on US shutdown

Markets take a breather on US shutdown but Aussie Dollar will be focused on Building Approvals

The share market looks set to follow the US lead this morning with a limited recovery from yesterday’s lows. However, weaker commodity markets overnight may see a soft early tone in the resource sector.

There are likely to be a number of factors causing the market to rally in the face of the political drama of yesterday’s US government shutdown. Traders had anticipated the closure after the weekend votes. This led to some ‘sell the rumour’ ‘buy the fact’ trading. At this stage markets are also assuming that the overall impact of the political impasse will be relatively limited. Firstly, because any loss of GDP output from the shutdown will at least partly be offset by a likely delay in Fed tapering. Secondly because some believe that if it comes to the crunch, the US President may choose to break the law and increase borrowings rather than allow the nation to default on its debt.

While US share markets recovered, metals and energy markets were generally weaker last night and may set a soft tone for the resource sector this morning. This weakness flew in the face of the 3rd consecutive above 55 reading for the US PMI. While this suggests positive conditions for the important US manufacturing sector, markets were more focussed on the moderate reading in China’s PMI released yesterday as well as the risks to demand from the US government slow down.

This morning’s release of building approvals and trade statistics will be a focus for markets, especially the Aussie Dollar. While it’s early days, recent statistics have given a hint of improving conditions in the non-mining sectors of the Australian economy. Significant post-election boosts to consumer and business confidence were followed up yesterday with a jump in Australia’s manufacturing PMI and news of ongoing strength in the residential property market. Good building approvals figures today would increase market assessments that the RBA may have finished cutting rates and could see further Aussie Dollar buying.

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