Thursday, October 3, 2013

Markets fall on lack of progress to end shutdown

Dow fell 124, decliners over advancers 4-1 & NAZ lost 35. The MLP index dropped 2+ to 448 & the REIT index was off 4 to 268.  Junk bond funds slid back & Treasuries were little changed.  Oil was flat & gold is trying to hold above 1300.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLX13.NYM...Crude Oil Nov 13...104.13 Up ....0.03 (0.0%)

GCV13.CMX...Gold Oct 13........1,309.30 Down ...11.30  (0.9%)

  • A woman fills out a job application as she attends a job fair in New York, June 11, 2013. REUTERS/Lucas Jackson
Photo:   Yahoo

The number filing new claims for jobless benefits edged higher last week but remained at pre-recession levels, a signal of growing strength in the labor market.  Initial claims for state unemployment benefits rose just 1K to 308K, according to the Labor Dept.  New jobless claims have been falling for much of this year & for weeks there have been fewer of them than even before the 2007-09 recession began.  However, employers have been more reticent about adding new workers to payrolls, & there are doubts whether the claims data still provides a clear signal on the pace of hiring.  The 4-week average of new claims fell 3K to 305K, the lowest level since May 2007.

Jobless Claims in U.S. Rose Less Than Forecast Last Week

A default caused by Congress failing to raise the $16.7T federal debt limit “has the potential to be catastrophic,” the Treasury Dept said today.  “The U.S. dollar and Treasury securities are at the center of the international financial system,” according to the report.  “A default would be unprecedented and has the potential to be catastrophic: Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”  Postponing a debt-ceiling increase “to the very last minute is exactly what our economy does not need,” Treasury Secretary Lew added.  Lew has said the Treasury projects that it will exhaust its “extraordinary measures” to stay under the debt limit by Oct 17 when it will have about $30B in cash on hand.

Treasury Says U.S. Default Has Potential to Be Catastrophic

Service Industries in U.S. Grow at Slower Pace Than Forecast

Photo:   Bloomberg

Service industries in the US expanded in Sep at a slower pace than forecast, indicating a pause in the momentum of the biggest part of the economy before the federal gov shut down.  The Institute for Supply Management (ISM) non-manufacturing index dropped to 54.4 from the prior month’s 58.6, the biggest decrease since Nov 2008.  A gauge above 50 shows expansion.  The estimate was 57.  A recent rise in mortgage rates may be tempering progress in the housing market, while the first gov shutdown in 17 years threatens to slow demand for everything from auto purchases to ait travel.  The ISM non-manufacturing gauge fell to the lowest level since Jun after jumping the prior month to the highest since at least Jan 2008.  The figure includes industries that range from utilities & retail to health care, housing & finance which make up almost 90% of the economy.

ISM Non-Manufacturing Index in U.S. Fell to 54.4 in Septembe

A sense of reality is breaking thru to traders.  The shutdown is serious & there is little hope for an early settlement.  Both sides have dug in & it's hard to see an end to this fiscal mess.  As bad as it is, the looming need to raise the debt ceiling makes matters worse.  Big banks will begin reporting Q3 earnings next week.  Their guidance going forward will be eagerly watched by traders.  Oct is shaping up as a bad month if DC doesn't get its house in order.

Dow Jones Industrials

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