Global Markets Overview - 2/11/14

Concerns over the debt ceiling deadline re-emerge

Early this morning Treasury Secretary Jacob Lew announced he will have to take extraordinary measures to avoid hitting the debt ceiling as the February 12 deadline approaches.

In a letter addressed to Congress, Lew stated that treasury will suspend debt issuances for the Civil Service Retirement and Disability Fund and not invest fully in the Government Securities Investment Fund of the Federal Employees Retirement System as funding for the broader public purse approaches a handful of coins.

These actions were taken during the 'previous debt-limit impasses' and the full funding of the two funds will recommence once action is taken to move the limit; however this evasive action needs to be taken.

US politics had taken a back seat since the government shutdown in October last year. The political fallout from the shutdown had been greatest for the GOP as fracture lines between traditional Republicans and the Tea Party constituents lead to infighting and back-room manoeuvring lead to perceptions of disunity and financial mismanagement - the opposite of which the GOP prides itself on.

The political blood split by the GOP has seen actual bi-partisan politics for the first time since 2008, with the bill to fund the government passing so quietly that not so much as a whisper was heard at the January vote.

The Murray - Paul Bill final saw compromise from Capitol Hill, which is something I expect to see in the coming days with the debt ceiling negotiations.

The market sees it this way as well; overnight a $42 billion six-month Treasury bill placement drew the largest discount rate since October, with investors billing for 3.4 times the total book and a discount rate of 11 basis points. If the market was concerned by the approaching debt limit, bidding would be well below book build and yields would have been higher - this should instil confidence.

However, the slight concern with the US political parties' flying this close to the wind again is any form of slip-up that delays the sign off to raise the ceiling will cause jitter the US market is already exhibiting weakness. Indifferent data has led to a 5% pullback in 2014 after a 30% calendar year run up. Any excuse to sell out of profit making positions looks to be on the cards, as not even an above average 78% of companies beating consensus estimates on the earnings line has been enough to hold the market up.

Ahead of the Australian open

65% of ASX listed companies start reporting to the market today. The healthcare space will start the ball rolling, with Cochlear and Mesoblast coming out just before the market, with Bradkin rounding out the three reports today.

Bradkin will be interesting as it has been a bright spot on the mining services landscape.

Currently we are calling the market up four points on the 10am bell (AEDT) to 5226 as the markets tread water ahead of tomorrow's reporting and Janet Yellen's testimony; it will be a quiet day as trading volumes from Asia to the US are well below the 30-day average.

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