Of Enrique Diaz-Alvarez

Suspension of most federal services in the US (Shutdown), following Congress’s inability to agree on funding bills, delayed the publication of the most important economic index – the Payrolls report in the US.

However, markets reacted calmly: US stock markets continued to record historically high, state -owned bond yields remained stable, and the dollar maintained its position against most of the basic coins.

Foreign exchange rates have moved within extremely narrow limits – one of the most limited ones recorded in the year. The biggest move among the main currencies took place in the YEN, which is receding sharply after the victory of the Right, candidate Takaici, which is in favor of an expansive economic line in the ruling elections of the ruling Japan party.

With democratic and Republicans appearing inappropriately, the key question about markets is how long the Shutdown can last before causing substantial financial damage – both directly and through the delay in critical economic statistics and the consequent uncertainty. So far, market reaction remains moderately optimistic. The financial announcements calendar of the week is in any case poor, even without Shutdown in the US, which allows foreign exchange markets to be guided mainly by developments in budget negotiations.

Sterling

September PMI indicators for British business have turned out to be weaker expectations, showing that the United Kingdom economy is moving at a sluggish rate below 1%, while inflation remains “stuck” around 4%. This situation is reminiscent of a mild form of stagnation – an economy with low growth, high inflation and low unemployment.

This framework justifies the current levels of the pound, although the risk remains a financial announcement that could exert new pressure on the government bond market. At present, interest rates remain high but steady – as well as the currency.

Euro

Pre -inflation for September stood at 2.2% for the total index and 2.3% for the structural instructor, with the latter remaining unchanged in the last five months. With these data and PMI indicators in line with slow but steady growth, the ECB can – in our opinion – keep interest rates close to 2% for the foreseeable future.

The yields of French bonds have currently stabilized, however, in the absence of significant announcements or political developments, interest in the common currency will remain on the French political scene.

US dollar

Government Shutdown has deprived the markets critical information on the US economy, forcing analysts to rely on less reliable private measurements. The most important of these, the ADP report on job creation in September disappointed, showing a marginal net reduction of employment. However, this measure has often been diverged from the Bureau of Labor Statistics counterpart, which is considered more reliable, so markets have largely ignored it.

Atlanta’s Fed’s forecast for the actual development of the third trimester foreshadows a growth rate of close to 4%, despite the undeniable slowdown in job creation – which suggests that the slowdown is more due to a reduction in job supply than to decline in demand workers.

*Enrique Diaz-Alvarez is Chief Financial Risk Officer of International Payment Company Ebury