US shutdown averted, for now

• European markets on the rise as US stopgap deal averts government shutdown
• Chinese PMI surveys see service sector under pressure
• Energy prices ease back, helping lift market sentiment

European markets have kick-started the week on a positive footing, as traders breathe a collective sigh of relief after the US congress managed to approve a stop-gap solution to the impending partial government shutdown. While the avoidance of this shutdown will undoubtedly provide a short-term reprieve for markets, it is simply a case of kicking the can down the road as we look ahead to the new deadline in mid-November. The underlying concern for economists will undoubtedly be the huge debt obligations being built by the likes of the US, where their reliance on debt comes back to haunt them as rising rates bring a sharp spike in the cost of debt. With annual US government debt repayments expected to top $1 trillion next year, there is a fear that this will spiral as the long-term yields rise in response to the higher-for-longer approach from the Fed.

In a week that looked likely to remove the Chinese influence given the closure of markets in the region, Sunday’s Caixin PMI surveys provided a reminder of the concern that dominates the region. Most notably, the services PMI looks to be heading into its first contraction of 2023. This private measure focuses on smaller and medium sized businesses rather than the giants that have been at the forefront of this recent credit crisis. However, it appears to be the case that the rest of the economy has started to take a turn, indicating the potential for further supportive action at the PBoC.

Energy prices have taken a welcome breather since Thursday’s peak, with WTI falling back to $90 after reaching a 13-month high above $94 last week. The influence of energy prices on inflation expectations does raise the role of crude prices as a driver of market sentiment going forward. As such, equity traders should be keeping a close eye on WTI as a driver of market direction, with any push up towards the $100 handle expected to drive down likely to bring about a of wider With equities moving higher as WTI retreats, traders will be increasingly aware of the role energy prices have on wider market sentiment as crude approaches the $100 handle.