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 Good morning. Here's what you need to know. - Markets in Asia were mixed in overnight trading. The Japanese Nikkei 225 rose 0.2%, the Hong Kong Hang Seng fell 1.5%, and the Shanghai Composite closed 0.7% higher. European markets are advancing this morning with the exception of the London FTSE 100, which is currently 0.2% lower. In the United States, futures point to a positive open.
- Congress was unable to pass a continuing resolution to keep funding the government in time to avoid a government shutdown, which goes into effect today. The shutdown is the first of its kind in 17 years and affects non-essential government workers. As a result, today's construction spending report, scheduled for release by the Commerce Department at 10 AM ET, will likely be delayed until the government reopens. "In the back-and-forth of legislative action, the ball is now in Speaker John Boehner’s court," says Morgan Stanley economist Vincent Reinhart. "The heat will build on politicians from constituents who were furloughed, inconvenienced, or fearful of market consequences. That is why we believe the odds favor a short event—over in one week."
- The headline index in the official manufacturing Purchasing Manager Index (PMI) report put out by China's National Bureau of Statistics edged up to 51.1 in September from August's 51.0 reading, failing to meet consensus expectations for a larger advance to 51.6. Markit's unofficial HSBC China manufacturing PMI, released Sunday evening, also edged up slightly, but failed to meet expectations. "The mild but steady improvement in both the official and HSBC PMIs support the argument we put forward earlier that while the growth rebound lacks further momentum, stabilisation is likely to be steady in the coming months," says Credit Suisse analyst Dong Tao.
- The eurozone manufacturing PMI was unchanged at 51.1 in September, in line with expectations, while the U.K. manufacturing PMI unexpectedly fell to 56.7 from 57.1. Within the eurozone, the German manufacturing PMI unexpectedly edged down to 51.1 from 51.3. The French manufacturing PMI unexpectedly rose to 49.8 from 49.5, but the sub-50 reading suggests the economy was still contracting. The Italian manufacturing PMI fell further than expected to 50.8 from 51.3. In short, the pace of acceleration in British, euro area-wide, German, and Italian manufacturing is slowing, while the pace of contraction in French manufacturing is also slowing.
- The eurozone unemployment rate was unchanged at 12.0% in August, defying expectations for a rise to 12.1%. The German unemployment rate unexpectedly ticked up to 6.9% from 6.8%, while Italian unemployment also unexpectedly rose to 12.2% from 12.1%.
- Japan's unemployment rate unexpectedly jumped to 4.1% in August from 3.8% the month before, while household spending unexpectedly fell 1.6% from a year earlier. The third-quarter Tankan Large Manufacturers Index of business conditions, however, rose to 12 from 4 in the second quarter, exceeding estimates for a smaller advance to 7. "We should note that large corporations have revised their USD/JPY assumptions for FY13 from last survey's ¥91.2 to ¥94.45, leaving less room for an improvement in earnings from yen weakness," says Deutsche Bank economist Kentaro Koyama. "Even accounting for the usual caution towards the future during economic expansion phases, the figures suggest that the momentum of economic growth likely reached its peak in 2Q and 3Q 2013." (Japan's prime minister Shinzo Abe also announced that he would be going forward with a controversial consumption tax hike in April, a move that is expected to be offset with additional fiscal stimulus.)
- The Reserve Bank of Australia elected to leave the official cash rate unchanged at 2.5%, as expected by market economists. "Much of the accompanying statement was unchanged from September and continues to convey a slight easing bias," says BofA Merrill Lynch economist Alex Joiner. "We expect that the post-election boost to confidence will fade towards the end of the year and still soft conditions, a rising unemployment rate and the elevated exchange rate will see the RBA look to ease monetary policy further in February next year. This is despite the momentum that is being gathered by rising house prices of which the communication today made no mention."
- The final results from Markit's September U.S. PMI survey are due out at 8:58 AM ET. Economists predict the headline index fell to 53.0 — down from August's 53.1 reading, but up from the September flash estimate of 52.8 published by Markit earlier this month.
- ISM's monthly manufacturing report is released at 10 AM. Economists predict the headline index slipped to 55.1 from August's 55.7 reading, indicating a somewhat-slowing but continued moderate expansion in American manufacturing.
- Global automobile manufacturers report monthly sales figures throughout the day today. We will hear from Ford, GM, Chrysler, Toyota, Honda, Nissan, and Hyundai, among others. Analysts expect total sales to slip to 15.80 million units at a seasonally adjusted annualized rate in September from August's 16.02 million SAAR. Domestic vehicle sales are expected to have fallen to 12.30 million SAAR in September from 12.44 million.
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