Monday Morning Cheat Sheet: 3 Stories Moving Markets (9/30/13)

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The prospect of a government shutdown weighed on markets around the world on Monday. In Japan, the Nikkei fell 2.06 percent to 14,455.80, although the yen strengthened slightly to 97.565 against the dollar. In Hong Kong, the Hang Seng lost 1.5 percent to 22,859.86, and in Shanghai the Composite gained 0.68 percent to 2,1784.66. In India, the Mumbai Sensex fell 1.76 percent to 19,379.77. In Australia, the ASX All Ordinaries lost 1.6 percent to 5,217.70.

European markets also fell in mid-day trading. In the UK, the FTSE 100 was off 0.87 percent. In Germany, the DAX was off 1.11 percent. In France, the CAC 40 was off 1.39 percent, and the Euronext 100 index was off 1.01 percent. The euro strengthened slightly to 0.7394 against the dollar.

U.S. equities mostly closed down last week — the Dow fell 1.3 percent, the S&P 500 was off 1.1 percent, but the Nasdaq edged out a gain of 0.2 percent — and looked ready to begin this week in the red. At 10:15 a.m., the Dow was down 0.85 percent, the S&P 500 was down 0.73 percent, and the Nasdaq was down 0.72 percent.

Here are three stories to keep an eye one.

1. U.S. Government Shutdown Looms

Last week, the House of Representatives passed a short-term budget to the Senate that would do two things: fund government operations through December, and defund the Affordable Care Act. After much ceremony, on Friday the Senate stripped the defunding measure and sent the revised version — which would fund operations through November — back to the House. Over the weekend, the House attached a measure that would delay the ACA for one year, and passed the whole thing back to the Senate, which is expected to vote on the package Monday afternoon.

If this looks like politicians playing a high-stakes game of hot potato with the U.S. budget, you’re not alone. Members of the Republican party (perhaps most visibly Senator Ted Cruz from Texas) have dug trenches on one side of the aisle while Democrats have dug in on the other, and standing between them is the ACA, the healthcare law that was championed by President Barack Obama and was  passed by Congress in 2010.

The GOP has compromised on their initial position, but many in the Democratic party feel that the initial threat — defund the ACA or face a government shut down — was so appalling that they have no obligation to yield themselves. Leaders of the Democratic party have signaled that the provision calling for a one year-delay to the ACA would not pass the Senate. With neither side willing to drop the issue and leave it for another day, the threat of a partial government shutdown is very real. This story is developing. The Senate will vote on the House measure passed this weekend, so stay tuned for more.

2. European Inflation

Annual inflation in the euro area is expected to fell from 1.3 percent in August to 1.1 percent in September, according to Eurostat. This is well below the approximately 2 percent longer-run average that the European Central Bank has targeted, suggesting that the region is facing some deflationary pressures that monetary stimulus has been unable to stifle.

Speaking earlier in June, ECB President Mario Draghi said that, “Looking back, despite extraordinarily testing economic circumstances, inflation in the euro area has remained on the whole consistent with the ECB’s objective of below but close to 2 percent. Looking forward, Eurosystem staff project annual HICP inflation at 1.4 percent in 2013 and 1.3 percent in 2014, but medium-term inflation expectations remain anchored in line with our definition of price stability.

“One reason why inflation expectations have remained broadly stable is that we — and other major central banks around the world — have prevented the materialisation of deflation risk by adopting both standard and non-standard measures as and when necessary.”

EA Inflation

Source: Eurostat

3. Canadian GDP

Real gross domestic product grew 0.6 percent in July, according to Canada’s statistics office. This marks a rebound from a decline of 0.5 percent in June, mostly led by strong gains in goods production (+1.2 percent), mining, and oil and gas production. Services increased 0.3 percent. The June decline was partially catalyzed by labor strikes and bad weather. Annual GDP growth has accelerated from 1.4 percent to 1.1 percent with the new data, but it’s unclear if the country will hit its third-quarter growth targets.

The Daily — Gross domestic product by industry, July 2013Don’t Miss: Sorry iWatch Fans, Apple’s New Hire Is Not a Wearable Tech Expert.