The US budget and debt controversies are slowly moving to the forefront of issues worrying investors offshore, but in Australia it is yet to register, except in the value of the Aussie dollar.
The Australian dollar fell late last week as the chance of a government shutdown in America increased, but our market had its seventh weekly gain, while the US market eased, as did markets in Europe.
It was the first weekly fall in four for the America’s two major market indexes, the Dow and Standard & Poor’s 500.
But in Australia it was almost party time, as the huge surge for the past fifteen months continued for another week.
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There have been complaints in the US that investors there were not taking the budget and debt situations seriously, but judging by the performance of the past couple of weeks, with losses (and especially compared to Australia), Americans are focused.
But they do believe there will be a last minute resolution to both situations, although it is still hard to see how the debt ceiling problem won’t hurt sentiment if it lingers from October 17 to the end of the month, as analysts at RBS suggested late last week.
But the US bond market saw its third consecutive week of gains, with yields down 11 points to around 2.62%, as investors fretted about the Fed easing and then the budget and debt ceiling controversies.
While investors in shares and gold are not showing much concern, bond markets are certainly now worried.
Gold was slightly stronger last week in the US, but silver eased. Analysts reckon that precious metals investors are moving to the sidelines ahead of the two situations simply because of the pressure from a rising US dollar while there’s confusion and no resolution.
US markets fell by up to 1.3%, Eurozone shares fell 0.5% and some Asian markets fell, but Japanese shares rose 0.1% and Australian shares added 0.6%.
The Share Price Futures Index contract lost 13 points in overnight trading Friday, meaning our market will start off soft this morning.
The latest Chinese manufacturing survey later in the day should have a positive impact if it is as good as the early report last week was.
But at the same time, if the flow of news from Washington is negative during today and into tonight, shares could ignore what’s coming out of China and sell off on the uncertainty.
Reuters reported over the weekend that the US markets still expected a deal on the budget this week, even if the government closes briefly for a day or two.
Markets in Europe will be wary later today as well with the collapse of the Italian government over the weekend, when ministers representing Silvio Berlusconi’s political party resigned from the cabinet.
That will prompt a rise in yields on Italian bonds and unnerve the rest of the eurozone which has been starting to enjoy the emerging weak economic recovery.
The collapse of the Italian government and market jitters will add to pressures on the European Central Bank meeting this week.
The Australian share market has hit a fresh five-year closing high on Friday adding 0.6% for the week, or 30.4 points.
The ASX 200 index has now jumped 10.5% since July 1, which is well over half the 17.4% gain in the year to June 30. That means our market is now up 27% since July 1, 2012.
By the close Friday, the ASX 200 finished 0.2% up at 5307.1, while the All Ords rose 0.3%, or 14.1 points, at 5302.3.
In New York the Dow shed 1.3% for the week. The S&P 500 lost 1.1%, but the Nasdaq rose 0.2%.
Comex December gold futures rose Friday, settling at $US1,339.20 an ounce, and rose 0.5% on the week. Comex December silver rose Friday, settling at $21.8310 an ounce, but fell 0.49% on the week.
In the US oil prices fell with November West Texas Intermediate ending at $US102.87, losing 1.8% over the week.
Including the past two weeks of losses, they’ve lost nearly 7%.
The easing in relations between the US and Iran was the big factor in driving down oil prices.
