Pillow talk

October 7 - 11, 2013

In North America...

Markets:  In the US, what looked like movement towards ending the Shutdown combined with central bank support, supported markets. The S&P gained 0.7% for the week. The direct relationship between investor concern over a default and market performance was particularly noticeable on Thursday:

The S&P leapt 2.2 per cent, its biggest one-day advance since January 2, as the White House and Republicans began discussing a short-term extension of the debt ceiling – a move that would, temporarily at least, remove the threat of a technical US default.

Similarly, the VIX, commonly known as a fear gauge, retreated towards Thursday and Friday. Counter intuitively, gold fell and sits at its lowest level of the last three months. 

Canadian markets followed US quite closely. Additionally, the Canadian jobless rate fell to lowest levels since 2008. Unfortunately, this seemed to be a result of fewer people looking for work, rather than a surge in hiring. 

Companies:  Twitter's prospectus revealed that the company's ad rates are falling, its growth in the US is slowing and it earns less money through mobile - an increasingly popular way of accessing the programme. It seems Twitter does not currently make a profit. Interestingly, it seems that 2/3rds of tech companies that have IPOd recently do not. Yet, optimism for these companies is extreme and returns one month in are similar to those achieved in the 90's technology bubble

Third quarter earnings season kicked of last week, with several banks reporting in. JP Morgan is of particular note, having reported its first quarterly loss under CEO Jamie Dimon, who has led the bank since 2005. Also of note, the bank has amassed a $23bn reserve for litigation; it had to pay out $9.2 bn in the 3rd quarter alone. Most alarmingly, the bank left open the possibility of yet more legal expense, saying that litigation costs may continue to be volatile over the coming quarters. 

Otherwise:  The US government shutdown continues. Confused over the budget? Check out the government shutdown, told in Lego by the Atlantic.

Also in the US, Janet Yellen was nominated by President Barack Obama to chair the Federal Reserve. She will be the first woman to run the bank.  

“When forced to choose between reducing employment or containing slightly above target inflation, it is widely believed that she will choose unemployment and thereby leave policy looser for longer,” said Camilla Sutton, chief currency strategist at Scotia Bank.

Bernanke departs in January. 

Globally, the IMF cut forecasts for global growth to 2.9% on account of emerging markets slowing (Brazil, India and China, specifically). 

The Economist looks at innovation in the US, and asks whether it country is "open for business":  

America is not producing as many start-ups as it did a decade ago and those that have been created are providing fewer jobs—less than five each, compared with an historical average of about seven. Start-ups created 2.7m new jobs in the 2012 financial year compared with 4.7m in 1999.

In Europe... 

Movement in US debt talks also have a positive affect on European markets. The FTSE 100 ended the week at a two week high and the Eurofirst 300 gained 0.5%. 

In companies, it seems that the Royal Mail floatation is vastly oversubscribed. Many have used the as a recent example of the government under valuing the market value for a public service. The state will maintain a 30% stake. 

Another popular British brand is experiencing problems. Credit Suisse, Bernstein and Deutsche Bank all issued negative notes to retailer Marks & Spencer, citing weak clothing sales in particular. 

The IMF may have lowered growth expectations globally, but forecasts for Britain were raised by half a percent. The IMF had previously suggested austerity was not working; the announcement left Chancellor George Osborne particularly smug. 

Tony Hall, Director-General of the BBC unveiled plans for a number of new products for the BBC, as it embraces digital. The FT questioned if the BBC was straying too far from its mandate, citing the several billion pounds it receives from taxpayers. 

In the coming week... 

Earnings season continues, as do debt ceiling negotiations. We also continue to wait for  a coalition to form in Germany. 

Pillow Talk, by Kurt Vile, was chosen to reflect the US debt and shutdown talks (or lack of talks, really). Perhaps a bit more pillow talk and cross party chatter would end the shutdown.