Thursday Morning Cheat Sheet: 3 Stories Moving Markets

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It’s Thursday, October 17, and the world can breathe a little easier. After more than two weeks of brinkmanship that pushed the U.S. government through a partial shutdown and to the doorstep of its borrowing limit, both houses of Congress voted on Wednesday night to pass a stopgap measure to fund the government through January 15 and suspend the debt limit through February 7.

The measure passed the Senate 81-18, cleared the House 285-144, and was signed promptly by President Barack Obama. The deal closes the curtain on the most recent act in the ongoing political drama in Washington, but the stage is by no means clear. The U.S. fiscal house is still not repaired — just patched — and pundits, politicians, and the public will get just a brief intermission to conduct whatever other business they can before the next act begins, shortly after the holiday season.

But in the meantime, financial markets marched on. Major U.S. equity indexes rallied on Wednesday as the stopgap measure took shape in the Senate but did not continue the rally in premarket trading after the deal was completed. At 8:35 a.m., Dow futures were off 0.31 percent, S&P 500 futures were off 0.18 percent, and Nasdaq futures were off 0.04 percent.

While the deal is a short-term positive catalyst for financial markets, it does little in the way of actually improving the economy — it merely removes a manufactured headwind. With the villain banished (for a few chapters, at least) the narrative is free to return to the recovery, which was left with a diagnosis of anemia in the wake of the U.S. Federal Reserve’s decision not to taper asset purchases.

The labor market, Fed policymakers argued at its last policy meeting in September, was still too weak for the central bank to take its foot off the gas. Headline unemployment has declined fairly steadily over the past few months (some employment data did evaporate with the partial shutdown), but other measures of labor market health such as labor force participation and the employment-to-population ratio indicate continued weakness.

The U.S. Department of Labor reported on Thursday morning that initial claims for unemployment insurance declined 15,000 in the week ended October 12 to a seasonally adjusted 358,000. The four-week moving average climbed 11,750 to 336,500.

Unemployment Claims 10.12

Source: Data from the U.S. Department of Labor

In other news, Canadian Prime Minister Stephen Harper is in Brussels on Thursday to close a free-trade agreement with European Commission President Jose Manuel Barroso. CBC News reports that the two leaders have reached a tentative trade deal that is expected to have an enormous impact on the food and dairy industry. Industry sources told CBC News that the deal is worth more than $1 billion to to the Canadian beef and pork industries alone, while European cheese makers will benefit from increased access to the Canadian market.

However, Canadian cheese makers are not happy with the arrangement. The Dairy Farmers of Canada issued a statement saying that it “is angered and disappointed with this news as the reality is that Canada would lose its small, artisan and local cheese makers and a world-leading industry with top quality products — within a short time frame. If this deal proceeds, the Canadian government will have given the EU an additional exclusive access of 32% of the current fine cheese market in Canada, over and above the existing generous access.”

European equities declined in midday trading. In the U.K., the FTSE 100 was off 0.21 percent; in Germany, the DAX was off 0.58 percent; in France, the CAC 40 was off 0.52 percent; and the Euronext 100 index was off 0.36 percent. The euro fell to 0.7319 against the dollar.

Asian equities also mostly declined on Thursday. In Japan, the Nikkei gained 0.83 percent to 14,586.51, and the yen strengthened slightly, to 97.8150. In Hong Kong, the Hang Seng fell 0.57 percent to 23,095.24, and in Shanghai, the SE Composite fell 0.21 percent to 2,188.54. In India, the Mumbai Sensex fell 0.64 percent to 20,415.51. In Australia, the ASX All Ordinaries gained 0.33 percent to 5,281.90.

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