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90 seconds at 9 am: No US deal; impacts starting in jobs, sales; no-one prepared; China moves against over-capacity; Fonterra auction lower; NZ$1 = US$0.837 TWI = 77.7

90 seconds at 9 am: No US deal; impacts starting in jobs, sales; no-one prepared; China moves against over-capacity; Fonterra auction lower; NZ$1 = US$0.837 TWI = 77.7

Here's my summary of the key overnight news in 90 seconds at 9 am, including news we are at the brink in the US.

In the Congress, hopes were high early in the day that a deal was near. But the Republican lower house pushed forward a highly partisan 'compromise' that was quickly rejected by Democrats, and gloom overwhelmed the issue again. Earlier work by Senators is now where common ground is being sought. All this is hard to reconcile with the House Republican leader saying "the US will not default". It is clear he is not in charge of his party in his chamber. One day to go.

Impacts from this gridlock are starting to be felt, and will probably grow quickly if a deal can't be done. US hiring is stalling. Car sales are declining rapidly. The rich are getting worried. The blow-back on New Zealand could come fairly fast, via China and Australia.

The early signs of a deal saw the gold price fall to US$1,250 but it is back to the $1,270 range now when that news evaporated. Ditto for the Dow, which is now down in mid-afternoon trade. UST 10yr yields are rising, now at 2.72%.

At this late stage, markets are being forced to 'think the unthinkable' - and it turns out few institutions are prepared for the consequences of an actual default. Even now, some traders are thinking we will get through this mess, but there will be bigger trouble next year. It's hard to bet against more can-kicking.

In China, a little noticed edict from Beijing may well impact us too - the government there has instructed its companies to cut back on over-capacity in some very big industries, a move that will no doubt cause short-term effects that will lower demand.

Meanwhile, in our corner of the world, we got the latest Fonterra auction results this morning and they are a 1.9% fall in US dollars, a 3.0% fall in NZ$. And later this morning we get Q3 CPI, and it is unlikely to signal concerns. Markets are expecting 1.2% year-on-year.

And one year swaps pushed up through 3.0% this morning, the first time in over two years it has been at this level.

The NZ dollar starts today higher again at 83.7 USc, 87.9 AUc, and the TWI is at 77.7.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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3 Comments

"Think the unthinkable" US debt default.

Que? They defaulted twice last century 1933 (Roosevelt) and 1971 (Nixon) - about forty years apart - should be  due for another one! 

 

Congress resolved to abrogate those contracts, and in 1935 the Supreme Court upheld Congress.

The “American default,” as this piece of domestic stimulus was known in foreign parts , provoked condemnation in the City of London. “One of the most egregious defaults in history,” judged the London Financial News. 

http://www.washingtonpost.com/opinions/americas-default-on-its-debt-is-inevitable/2013/10/10/1451d416-302c-11e3-bbed-a8a60c601153_story.html

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VALE: the father and inventor and progenitor of Gummy Bears passed away in Germany overnight.

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Article on building a real time network of worldwide consumer price data

http://www.theatlantic.com/business/archive/2013/10/the-price-network/2…

 

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