NFP? In your dreams! | 11 October 2013

Over the last week, market had been waiting for the report on non-farm payrolls. But.. did not wait. Partial shutdown of the US government happened... Therefore, it was even harder to wait until FRS starts scaling down monetary incentives. EUR/USD grew for the week and achieved $ 1.3646 on Thursday. German data of the week showed that driving force of euro zone went down and productivity index continued its deceleration. In the beginning of the week, GBP/USD grew up to new levels above $ 1.6250. But it started to drop from Tuesday and closed the week at the point of 1.6009. USD/JPY was traded in the range 96.90 – 98.70 and closed the week at 97.47. Japanese did not amend its monetary policy. Forex forecast for the week October 7 – 11 US Federal Reserve System officially declared on Friday that partial shutdown of the government could slow down FRS estimation of the economy, but FRS was not able to say if it could delay decision on buying bonds of the Central Bank for 85 bln USD. Shutdown, which began on Tuesday made Department of Labor cancel release of the report on employment scheduled for Tuesday. This report is an important figure for investors and FRS telling about health of the labor market. Up until now, it is not clear how long shutdown will take and which other reports can be delayed. President Federal Reserve Bank of Richmond. Dr. Lacker said that absence of the September employment report will impede estimation of the progress of the economic recovery by officials of the central bank. But he also said that FRS does not weight one-month's data much, because data is often revised later. Dr. Lacker also pointed that officials can access data from the number of reports provided by private sector. One of permanent issues of the financial markets is that money should always be directed to a certain purpose. Large financial authorities and funds must generate income from their corporates. Usually, investors amend their portfolio respectively to changes starting from stocks ending bonds. If everything seems bad, they increase amount of bonds and if the economy is in upsurge, they bought in stocks. Everything seems to be simple in fact. Now we live in globalization era. Capital easily moves within regions and states. Successful investors realize that and ETFs made such flows easy and cheap, because they could be tracked in each region and state. Nevertheless, there is a shifting in the most part of countries investing habits. Number of shifts decrease, but investors still keep 70% of their money in the USA, despite the fact that USA accounts for 43% of the world GDP. That could be explained, because native economy and market are better in terms of comprehension and tracking, but sometimes it can be a hindrance for those wishing to adjust their investment portfolios. Now US is attractive for many investors looking for a better of two evils. The government is still shut. The Congress is more than ever non-operational. We approach one more fight, at this time it is about state debt ceiling. If all these matters are solved quickly, the most probable is that FRS will decrease monetary incentives or QE and market will get negative towards that, whereas dollar will get stronger. The point is that a traditional escape to safe assets, in particular, US treasury bonds is no longer attractive. If the ceiling is not raised, US credit rating will be a question point. The last time it happened prices for treasury securities went up with the consequent fiasco, but one more time will make it possible that “big money” won't forgive it. Prevention of crisis will make FRS decrease amount of bonds they buy and pressing bond prices this way. It would seem that home investors have no place to hide. And many of them seek for something to hedge their risks. One of possible answers is to buy an old reserve asset - … gold. The issue is however is that yellow metal is in trap of its own dynamics: it fell down from oversold zone and stuck on the level of about $ 1300 per ounce. It is also truth that from the viewpoint of fund's manager, it is good that dividends and per cent should not be paid from growth of cost. Europe still faces potential issues caused by high state debt and unemployment in peripheral countries and is sensitive towards problems in the USA to some an extent. Countries with forming markets retarded. Japanese stocks recovered, but started falling down against their peak values in May. US issues reflect general problems. Some would seek for the answer on the other side of the globe, in Australia, which is not insured against problems in the US and world economy. In fact, Australian stock market was damaged a lot by economic recession 2008/2009. MSCI, Australian ETF went down from the high level of October 2007 - 34.83 – to the lowest point 10.50 in May 2009. This time something will act in other way. Unlike credit crisis, consequences of the US government policy, their action (or inaction) can be reverted. If it comes to the extreme point, decline will be more moderate than it was in 2008. If they manage to get out in a some way and FRS will start narrowing, recovery of the US dollar will press commodities, which is good for Australia. Yield of 10-years' Aussie bonds give approximately a 4% return from the money saved there to wait out a storm. There is also a currency risk, but if US chaos takes place, it is not probable that US dollar will significantly grow against some other currency. A common sense tells that Chinese decline could make Australia face harder times. That is to say, long-term investment is not a good solution for the time, when USA is in the focus of attention. Major shifts in investments is common and could be understood, but national stocks and bonds can get under pressure and, to save their money, investors try to stay out of trouble.