Intraday Market Thoughts

Fitch Threatens US Downgrade, House to Vote

by Adam Button
Oct 16, 2013 0:04

House Republicans threw a wrench into negotiations on Tuesday. The yen was the top performer on the day as risk aversion rose. Fitch put the US rating on a negative watch for a downgrade with the debt ceiling days away.

House Republicans will advance their own bill to end the fiscal impasse late on Tuesday. It would reopen the government until Dec 15. It's unclear how much opposition it will face from the left and extreme right in the House and the upcoming vote is expected to be close. If it passes, it's highly unlikely to get by the Senate.

Markets scoffed at the surprise move from the House, sending the S&P 500 down 0.7% and USD/JPY down about 40 pips. Gold was a main beneficiary, climbing to $1285 from $1255.

Despite the surprise, the broad strokes of the House plan are similar the Senate negotiations. Critically, repealing the medical device tax is no longer on the table and that represents some progress.

The bigger surprise came after US stocks closed. Fitch placed the US on ratings watch for a downgrade sometime before the end of the first quarter. They warned about weakening political resolve and international standing as key risks.

The headlines sent USD/JPY quickly below 98.00 before the pair rebounded to 98.20. Economic news also continues to reflect badly on the US as the Empire Fed fell to the lowest since May.

Outside of the constant headline watching from Washington, one of the big stories was the breakout of the Australian dollar. AUD/USD is at a 3.5 month high and EUR/AUD fell below its recent lows. Technically, the charts are interesting and fundamentally the RBA minutes didn't have any hints about rate cuts.

New Zealand CPI at 2145 GMT is the top item on the calendar. A rise of more than 0.9% q/q expected would further bring forward the possibility of rate hikes and give the kiwi fresh life. Otherwise, all eyes will be on the House vote.

Act Exp Prev GMT
Consumer Price Index (Q3) (q/q)
0.9% 0.9% 0.2% Oct 15 21:45
Consumer Price Index (Q3) (y/y)
1.4% 1.3% 0.7% Oct 15 21:45

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