The US government finally last week unlocked the doors of its government office after a record closure of 43 days – beating the prior record by eight days.
Seemingly, it had a negligible effect on capital markets, which generally held their own – the S&P 500 remaining flat through the period.
“As is often the case, the market took the broader political issues in its stride,” said Mark Lister, investment director with Craigs Investment Partners.
Lister, however, said there was a chance the scenario could play out again in less than three months, with a number of US agencies still only funded through to the end of January while Congress continues to debate healthcare subsidies.
Craigs Investment Partners’ Mark Lister.
Data blackout
The other wrinkle to the shutdown is the data blackout, with what Lister described as a "mile-long” list of economic and other data the market just hasn’t seen.
That included the jobs report for two months and an inflation report due last Thursday.
Lister said none of those have been rescheduled, with the White House suggesting the market may never have access to that data, as they can’t “wind back the clock” and do those surveys retrospectively.
He said while that was an annoyance for investors, it was certainly a concern for the US Federal Reserve, which is expected to make a decision on rates in less than a month, on December 10.
“Right now, the odds of a cut are 50/50, so the market just has to wait and see.”
Ending the week was some “ugly” economic data out of China, so we don’t know how the world’s biggest economy is tracking, but the world’s second-biggest has seen an intensified housing slump, slower industrial output, and softer retail sales.
Investors turn to alternative assets
More positive unemployment news out of Australia during the week, meanwhile, effectively scotched any hope of a rate cut there.
“That’s an interesting dynamic: where the Fed is 50/50, the RBA won’t cut until next year, [and] NZ will still definitely cut rates – so we’re marching to a different sort of beat,” Lister said.
Locally, equity markets were dominated by improving sentiment for Mainfreight and positive outlooks for both SkyCity and Serko.
Nigel Green – the chief executive of Dubai-based financial advisory firm DeVere Group – meanwhile, said mounting debt levels in major economies, including the United States and United Kingdom, were driving a surge of investor interest into alternative assets.
The comments came last week as the US national debt was reported by the Committee for a Responsible Federal Budget to above US$38 trillion ($67tr) and was projected to reach about 125% of GDP by the end of this year.
In the UK, public sector net debt was at 96.4% of GDP, its highest level in more than six decades, while the IMF warned that global government debt could approach 100% of world GDP by 2029.
Green said the numbers showed a “slow erosion” of purchasing power and a growing risk that the world’s largest economies will struggle to finance themselves without constant central bank support.
And that’s prompting investors to shift away from assets tied too closely to sovereign balance sheets. “Traditional bonds are losing their defensive value and cash offers no protection against currency depreciation," Lister said.
Those alternatives are now extending into pension managers, with sovereign wealth funds also “recalibrating their portfolios” to hedge against the debt-driven inflation threat.
