Overview: Cyclical assets broadly rose after the US passed a bill to reopen the government and suspend the federal debt ceiling to 7 February 2014. With the Treasury now able to continue borrowing to fund expenditure, markets are more …
ETF Securities Research
optimistic that a global recovery will not be derailed. Adding to positive sentiment, Chinese Q3 GDP figures confirmed that growth picked up after a pause in the middle of the year. Counter-intuitively, gold staged its biggest one-day rise in a month following the agreement as shorts were covered and a weaker dollar helped drive the price higher. After a dearth of official data, the US non-farm payrolls numbers that will be released tomorrow will likely attract even more attention than usual. Markit PMI manufacturing readings for China and the US will be closely watched as investors assess the impact of the US budget and debt negotiations on global business sentiment. With Fed tapering likely put off until next year now and growth indicators in most key regions showing improvement, cyclical assets and global growth plays should remain in favour across asset classes.
Commodities: Industrial metals lead commodities higher. Buoyed by the suspension of the debt limit, industrial metals generally rose. Platinum and palladium, precious metals with wide industrial applications, both rose 2.5%, boosted by strong Chinese auto sales data. Another death of a union official close to Lonmin’s Marikana platinum mine provided a reminder of how union rivalry could hamper platinum and palladium production this year, adding further support to prices. WTI crude oil fell close to $101 a barrel on seasonal weaker refinery demand. Both WTI and Brent benchmarks dropped as there were signs of progress on Iran’s nuclear programme discussions in Gevena, which could eventually relieve sanctions on the country’s oil exports. A warehouse fire in Brazil led to a 1.5% weekly rise in the sugar price, as the sugar available for near-term delivery could be reduced.
Equities: Global equities rally as immediate risk of a US debt default is out of the way. At the final hour, the US government, yet again, suspended the debt ceiling, thereby avoiding a potentially catastrophic US debt default. Benefitting from stronger Euro, European equities have been leading the way with the FTSE 100® Leveraged Index and the FTSE® MIB Leveraged Index surging 4.5% and 3.8% respectively last week. The DAXglobal® Coal Index rallied 3.3% on better-than-expected quarterly results from coal miners such as Peabody, the largest US coal producer. The Russell 2000® index, which provides exposure to the small-cap segment of the US equity universe, also rallied 3.1% over the past week, outperforming the S&P 500 by 1 percentage point. The Russell 2000 index tends to outperform large cap benchmarks during periods of increasing appetite for risk.
Currencies: Chinese policymakers keep AUD, NZD supported. The Antipodean pair of the AUD and NZD were two of the best performing currencies last week, as seemingly perennially pessimistic analysts continue to revise expectations for Chinese activity higher. While the Australian and New Zealand central banks have tried talking their currencies lower, the commitment of Chinese policymakers to robust growth is likely to hamper these efforts in the short-term. While it has been surprisingly strong data from the UK on which the gains in Sterling have been based, the delayed US economic data and the resolution of the US debt impasse have played a part. The US side of the equation is likely to be a greater focus this week. Tomorrow’s US jobs data will be closely scrutinised, and if the delayed numbers are solid, the USD could reverse losses quickly.