Friday’s piece

Asian stock markets have risen as the White House and Republicans held their first serious talk to shift the fiscal deadlock in Washington. Republicans have signaled they are willing to compromise – on the debt ceiling deadline anyway. They’ve offered a six week extension to allow America to pay its debts from 17 October, which has been rejected the White House, even so shares in Japan, Australia, China and Hong Kong have all risen today after a rally on Wall Street last night.

After Wednesday’s much weaker than expected UK August industrial production data, today’s construction output figures will be watched closely for further indications of the strength of the economy. Recent months have seen signs of the sector stabilizing. The headline construction PMI held close to a six-year high in September, while the housing activity component rose to its highest level since November 2003. This has boosted hopes that construction output will add to GDP growth in Q3 following the 1.9% rise in output in Q2. Following July’s 2.2% rise, we forecast a small decline in output of 0.5% in August. Allowing for this, and only a modest gain in September, would mean that construction output would rise by around 1.5% in Q3.

Nevertheless, construction output would still stand some 15% below its 2008 peak. Most of the US data due to be released today, is set to be postponed as a result of the government shutdown. This means that the October University of Michigan consumer sentiment survey will likely get greater attention than usual. The shutdown may well impact consumer confidence causing consumer’s to delay purchases. However, as the survey was conducted in the first few days of the month it is probably too early to expect a pronounced shutdown effect this time. This weekend’s IMF meeting is likely to see plenty of discussions and warnings of the potential global implications, of both the US government shutdown and a breaching of the debt ceiling, if a resolution is not reached. The crisis has helped push out the likely timing of Fed tapering of its asset purchases. However, as the IMF’s forecast update highlighted the likely sizeable impact of this, particularly on financial markets, it will still get a lot of attention. Shares in Royal Mail have opened at 450p delivering a 36pc return on their historic debut. The price, 120p higher than the 330p set by the Government last night, is even higher than the optimistic expectations. The conditional trading, open only to big institutions from 8am today, saw intense demand after only 300 big investors were allocated shares when 800 applied for them.

The institutional offer was 20 times subscribed. Retail investors will not be able to trade until the full listing on Tuesday morning but plenty will be sitting on hefty profits from betting in the grey market. Brace for tussle over the Government will claim success, the Opposition will say the business has been sold on the cheap.
European Stability Mechanism chief Klaus Regling says Greece will probably need a third rescue program next year and the euro area’s firewall fund will be able to move quickly when needed – {}

Fitch – I think agreement will be reached to raise the debt ceiling; would put US AAA rating on negative watch if govt fails to reach deal on ceiling in a timely manner before Treasury exhausts extraordinary measures – {}

About Hetal Patel - Chief Editor, Europe

Hetal Patel has written 58 post in this blog.