US debt deal fires new round of risk taking

Share Markets:

Risk appetite strengthened again overnight. 

The confirmed agreement to reopen the US government and raise the debt ceiling until early next year ignited another round of risk seeking. 

The S&P 500 share market index rose to a record high overnight as the US government raised the debt ceiling and reopened the government. 

The S&P 500 index closed 0.7% higher while the Dow Jones ended the session flat.


US 10-year Treasury bond yields fell from 2.65% to 2.59%.

That's a total decline of 17bp so far since the fiscal agreement was reached, much of it probably representing the default risk premium which was earlier embedded.

One-month Treasury bill yields fell further from 0.18% to 0.01%, for a total decline of 44bp over two days.

Australian 3-year government bond yields (implied by futures) fell from 3.14% to 3.08% and then consolidated in

New York. 

The 10-year yield fell from 4.12% to 4.07%.

Foreign Exchange:

The US dollar index is around 1% lower, reflecting damage done by the fiscal bickering which threatened a debt default.

EUR/USD rose from 1.3555 to 1.3682 - a nine-month high. USD/JPY fell from 98.40 to 97.74.

The improved risk appetites among investors helped the AUD/USD rise from 0.9532 to 0.9647 - a four-month high. The AUD came close to testing stiff resistance around USD0.9665. 

Over today's Asian trading session, the AUD will be heavily influenced by the batch of Chinese economic data due for release this afternoon.  It includes industrial production, retail sales and GDP.

The NZD also lifted on the back of improved risk appetites - from 0.8420 to 0.8525 - a five-month high.


Gold futures jumped the most in four weeks as the USD slumped and speculation mounted that the Federal Reserve will hold off on scaling back monetary stimulus, boosting demand for the metal as an alternative investment.

West Texas Intermediate dropped to a three-month low after an industry group reported an increase in inventories. 

Other commodity prices were generally lower overnight.


Business confidence rose from -1 in Q2 to +3 in Q3, according to the quarterly NAB business survey.

The improvement after the Federal election has already been reflected in the monthly surveys published earlier.

Other factors which may have supported confidence include an improved outlook for China.

However, business conditions weakened to -7 in the quarter from -6 previously, suggesting economic activity remains subdued. It points to further weakness in the labour market.

New Zealand:

ANZ job ads rose by 1.1% in September following a 1.3% decline in the previous month.

Although volatile month-to-month, ads were 4.1% higher in the year to September, providFRiday123ing a positive sign for the labour market.

ANZ-Roy Morgan consumer confidence index rose from 122.3 in September to 122.3 in October, rebounding to a near three-year high.

The sustained high readings of consumer confidence along with improving business confidence further point to a pickup in demand within the NZ economy.

United Kingdom:

Retail sales rose more than consensus forecast in September.  Sales including fuel jumped 0.6% in September from the previous month.  Only a year ago, retail sales were 2.2% stronger. 

This data adds to the view that Britain's economic recovery is gathering pace.

United States:

US President Barack Obama signed into law a measure ending the 16-day government shutdown and extending the nation's borrowing authority until early next year.

The US statistics department said it expected to release the backlog of economic data next week.

Overnight, the Federal Reserve Bank of Philadelphia's general economic index fell to 19.8 this month from a more than two-year high of 22.3 in September.  A reading greater than zero signals an expansion in manufacturing.

More Americans than forecast filed applications for unemployment benefits last week as California continued to work through a backlog, indicating it will take time to gauge the impact of the federal shutdown. 

Initial jobless claims fell by 15k to 358k in the week ending October 12 from a revised 373k in the prior period. 

The legislation passed by Congress overnight to raise the debt ceiling and fund the government into 2014 will bring hundreds of thousands of federal workers back to their jobs and may also prompt the recall of non-federal contractors that had been let go.