Asian benchmark indices rallied strongly today, following news of a US debt ceiling deal. Benchmark indices rallied from 0.5% to as high as 1.83% (in South Korea). Europe and American indices rallied in the morning until US ISM data halted the rally.
The initial focus on trader’s sentiment was on a deal on US debt ceiling. By the time, the US opened, the sentiment has shifted over to economic data (Manufacturing). The US ISM manufacturing data came in at 50.9 which were lower than last month’s 55.3 in June. Economists were expecting a figure of 54.5.
From a global point, manufacturing indexes fell from Asia to Europe as global demand had weakened considerably. Factory growth from Europe to China lost momentum. As a result, there’s uncertainty of global growth from the previous recession.
In my opinion, economic data - Manufacturing data is the primary focus, followed by the Aug 2nd deadline and nonfarm payrolls on Friday!
At point of writing, Europe indices that opened on a positive rally nosedived 1.5% to 2% in France and Germany respectively. US indices which opened up with a 3 digit rally reversed down 0.3 to 0.4%. It looks like this week is certainly going to be another volatile week!
Please note: I like to point out that the US debt ceiling and US credit rating are two different scenarios. As nothing can be guaranteed, there’s uncertainty if the deal can be passed through. If there is too much expectation of the deal being passed through, the outcome on the other side will create another earthquake. This had happened before when the TARP initiative did not pass through on September 29, 2008.
“The failure of the bailout package in Congress literally dropped jaws on Wall Street and triggered a historic selloff -- including a terrifying decline of nearly 500 points in mere minutes as the vote took place, the closest thing to panic the stock market has seen in years.
The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks.”
Is US likely to avoid a Debt default? There’s no way I’ll answer this question. Well, if we have patience, we’ll know the answer in just a couple of days. Let’s be patient, won’t we?
Meanwhile, the situation is risky – very risky. Even if the deal is endorsed by the President, there’s also the situation if the United States would still hold its AAA rating. My generals are re-accessing the situation as trader’s sentiment had all together changed with the financial climate.
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