Vote cancelled, stake on the rise
Even if the House approved Boehner’s bill, Senate would nearly certainly reject it. So one might say that nothing has happened. But how can we expect a bipartisan compromise when there is not even a common stance among Republicans? The message is definitely bad and leaves markets wondering what would it take to avoid the US downgrade within the next few days.
Surely there is still a hope that the weekend will bring (or get us closer to) an 11th hour solution and should that happen, dollar, equities and EURCHF would surge on a relief rally. It was clear from the very beginning that a technical default or even a downgrade would hurt those markets really bad but now with the risks partially priced in any outcome is bound to result in substantial movements.
So far, we saw bears negating a bullish technical outlook for the S&P500 as a direct consequence of the cancelled vote. The futures dived below the key level 1290 and the best scenario that the bulls might hope for at the moment is a broad consolidation (see also a comment on S&P500 in yesterday’s snapshot).
Moody’s on the Spanish rating
We have already signaled that the risk of a downgrade in US is a direct risk for peripheries in the euro zone. A run from risk means a sell-off of riskier bonds regardless of solutions accepted last week in Brussels. Therefore it is not surprising to see Moody’s taking the Spanish Aa2 under observation or the EURCHF back at the historical lows.
Event to watch – GDP, Chicago PMI
With all the uncertainty surrounding the debt ceiling in the US and the impact on Europe, macroeconomic data comes second. Therefore the figure of the week – Q2 US advance GDP (8.30 ET, 14.30 CET, consensus 1,6%A) might not have a substantial impact on the market unless the deviation exceeds 0,5pp. The same is true for the Chicago PMI (9.45 ET, 15.45 CET, consensus 60,1 pts.) yet this one is worth watching – last month it gave a valid signal ahead of the national ISM.
|
Przemysław Kwiecień PhD, Chief Economist |
 |
Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more
