October 17 2013

In the trading room today: What’s Next for the USD after the US Averts a Default? Following the decision to lift the US debt ceiling and to end the government shutdown, we take a close look at the USD and ponder what might be next for the greenback as newly-established budget deadlines promise more potential political deadlocks in the months ahead, we analyze the rallies in the EUR/USD and the GBP/USD currency pairs, we note the weakening of the USD vs. JPY, we highlight the market’s reaction to Dagong Global Credit Rating agency’s downgrade of the US credit rating, the Euro-zone Current Account, the UK Retail Sales and the US Jobless Claims, we discuss new forecasts from Black Rock, PIMCO, Bank of Tokyo-Mitsubishi and HSBC, and prepare for the trading session ahead.


The US avoids a default and government shutdown ends, but more political drama set to come in December when a new sequence of deadlines begins. Wall Street falls, dollar down. Dagong downgrades US credit rating. Analysts unimpressed by deal…


Powered by Guardian.co.ukThis article titled “US debt ceiling deal fails to cheer markets – live reaction” was written by Graeme Wearden, for theguardian.com on Thursday 17th October 2013 14.10 UTC

Goldman Sachs shares are also dragging the Dow down, dropping 2.6% after third-quarter results missed forecasts.

Goldman and IBM (-6.5%), along with United Health (-3.3%), are basically responsible for the entire triple-digit drop on the Dow in early trading. Most other stocks are flat, or up a bit.


A catch-up

Time for a summary of events so far today.

The US has averted the risk of a catastrophic debt default after Congress finally agreed a spending bill to reopen the Federal government and extend the debt limit.

The short-term deal, signed after midnight Washington time (read it here) gives the government the authority to borrow until early February, and also approves budget spending until January 15th. Here’s the key points.

Hundreds of thousands of government workers have been asked to return to their desks, as analysts ponder the political fallout. The IMF also weighed in, urging America to avoid a repeat of the debt ceiling debacle that has loomed over the global economy.

The short-term nature of the deal has disappointed the financial markets, who expect a repeat of recent deadlock and conflict in the months ahead. Most European stock markets have fallen so far today.

Wall Street just opened in the red, with the Dow dropping over 100 points in early trading.

Early this morning, China’s Dagong agency downgraded the US credit rating, from A to A-. It warned that:

The government is still approaching the verge of default crisis.

The dollar has lost ground in the currency markets, amid speculation that the Federal Reserve will continue its stimulus programme at the current rate until March 2014.

On a brighter note, the cost of insuring US debt has dropped, and the prices of short-term Treasury bonds have risen.

Financial experts are relieved that the risk of a US technical default is off the agenda, at least until early 2014. But many expect further brinkmanship and conflict on Capitol Hill in the coming months. Here’s some early comment …and here’s a bit more.

In Washington, Democrat and Republicans will begin discussing long-term budget issues, as part of the ‘budget conference’ agreed in the deal.

Shares drop in New York

Wall Street is open, and shares are dropping in early trading.

The Dow Jones index fell by 116 points in the first few minutes, a drop of 0.7%,x to 15257. The S&P 500 and Nasdaq indices are also in the red, following today’s losses in Europe.

The Dow is being dragged down by IBM, whose shares have fallen 6% after it missed revenue forecasts last night, blaming a slowdown in China.

Why Dagong downgraded America

China’s Dagong credit rating agency has now uploaded its statement, confirming that it had downgraded the US by one notch to A- .

Dagong Downgrades the U.S. Sovereign Credit Ratings to A- Dagong Global Credit Rating Co., Ltd.

As covered earlier, Dagong is alarmed by the Federal shutdown (now finally over), and worried that America is sliding deeper towards the verge of a “default crisis”.

For example:

The partial U.S. federal government shutdown apparently highlights the deterioration of the government’s solvency, pushing the sovereign debts into a crisis status.

The U.S. federal government announced its shutdown on Oct. 1, 2013, a radical event that reflects the liquidity shortage aroused by depleting stock of debts without the increase of new debts, directly resulting in the federal government lack of the funds for its normal function.

The partial U.S. government shutdown is an inevitable outcome of its long-term failure to pay its excessive debts.

Dagong is also concerned that the US national debt will keep rising, and criticised the ‘monetisation’ of US liabilities through the Federal Reserve’s QE schemes.

The agency also pointed to the disfunction on Capital Hill:

As the issue of paying sovereign debts falls into a tool that the parties make use of to realize their own interests, the political environment is unfavorable for eliminating the risk of its sovereign debt default in the long term.

US short-term government debt is being treated as an ultra-safe haven again, with prices rising back to their previous levels after dipping in recent days.

Makes sense, as there’s no danger of America defaulting in October and November.

These price rises have driven down the interest rates on one-month Treasury bills to the lowest rate since the end of September. A bill that matures on 14 November is now yielding just 0.01%, compared to 0.15% yesterday.

Dollar keeps falling

The US dollar continues to slide. It’s now lost one and a half cents against the pound, which is trading at $1.611. The euro has also gained more than one cent, to $1.365

Toby Nangle of Threadneedle Investments warns that the US dollar’s status as the world’s premier reserve currency has taken a knock over the last few weeks:

That a technical default has been averted is to be welcomed, but the public brinkmanship involved in arriving at this temporary extension of the debt ceiling has been unpalatable and serves to further chip away at the U.S. dollar’s status as unquestioned reserve currency.

Threadneedle now expect the Federal Reserve to resist tapering its bond-buying asset purchase scheme until March 2014. More here on the WSJ

Jane Foley of Rabobank agrees that the Fed probably won’t taper until March 2014. This promise of much more quantitative easing is pushing the dollar down, she adds, writing:

Poor old dollar….

The prospect of another uncomfortable debate in government raises the prospect that the Fed could potentially defer tapering until its March policy meeting. As a consequence we will this week lower our USD forecasts across the board; our new forecasts will be published tomorrow.

The weekly US jobs data has just been released, and shows that more people filed new benefit claims than expected last week.

A total of 358,000 new jobless claims were filed in the seven days to October 12, down from 374,000 the previous week, but rather higher than the 335,000 that Wall Street expected.

Here’s some more snaps:

17-Oct-201313:30 – US JOBLESS CLAIMS 4-WK AVG ROSE TO 336,500 OCT 12 WEEK FROM 324,750 PRIOR WEEK (PREVIOUS 325,000)

17-Oct-2013 13:30 – US CONTINUED CLAIMS FELL TO 2.859 MLN (CONS. 2.915 MLN) OCT 5 WEEK FROM 2.902 MLN PRIOR WEEK (PREV 2.905 MLN)



The full spending bill is online here as a pdf.

Goldman Sachs cuts bonus payments

Goldman Sachs bonus pool for the last quarter was around 35% shallower than last year, after the bank saw net profits applicable to shareholders, and revenues, drop.

From today’s results statement:

The accrual for compensation and benefits expenses (including salaries, estimated year-end
discretionary compensation, amortization of equity awards and other items such as benefits) was $2.38 billion for the third quarter of 2013, 35% lower than the third quarter of 2012.

The ratio of compensation and benefits to net revenues for the first nine months of 2013 was 41.0%, compared with 43.0% for the first six months of 2013 and 44.0% for the first nine months of 2012. Total staff increased 3% compared with the end of the second quarter of 2013.

The topline net earnings figure from Goldman is $1.52bn, or $2.88 a share, up slightly from $1.51bn a year ago.

Goldman Sachs is pinning its hopes on Congress resolving the long-term uncertainty over America’s budgets, as it releases its third-quarter results which showed a 2% drop in net profits compared with last year.

Goldman reported a sharp drop in net revenues in the last three months, to $6.722bn compared to $8.612bn in the three months to June 30. Weak bond trading activity is one factor.

Lloyd C. Blankfein, chairman and CEO, said:

The third quarter’s results reflected a period of slow client activity.

Still, we saw various signs that our clients are prepared to act on significant transactions and we believe that the firm is well positioned to help our clients accomplish their objectives.

As longer term U.S. budget issues are resolved, we could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery.

Goldman also reported net profits (applicable to shareholders) of $1.429bn in the three months to 30 September, down from $1.861bn in the previous quarter, and $1.458bn a year go.

UK business secretary Vince Cable has moved another step closer to launching a new business bank, by naming former Standard Chartered exec Ron Emerson as chairman (via Jill Treanor)

Over on Business Insider, Henry Blodget is laying into the 144 Republicans (here’s a list) who voted against the spending bill last night.

Blodget’s not too impressed with the deal (like most people we’ve quoted today):

It’s not a long-term deal, of course.

In fact, it’s not even a medium-term deal.

It’s a two or three month deal.

Which means that the Congress-people elected to lead our country will once again soon be in their favorite position in the world: In front of TV cameras grandstanding about how “the opposition” is destroying the country and demanding that everyone kowtow to their every demand.

But he’s particularly irked that a senior player like Paul Ryan (the Republican Party nominee for Vice President in the 2012 election) could oppose a deal that fended off the default risk, saying:

[Ryan] has a reputation for being fiscally responsible, on account of some budget ideas he has put forward in recent years. Ryan’s vote to send the U.S. into default should delete this reputation for fiscal responsibility once and for all.

Here Are The 144 Republicans Who Voted To Send The U.S. Into Default

A new straw poll from Citigroup suggests America won’t suffer a credit rating downgrade from a ‘big three’ agency (rather than China’s Dagong) in the next six months:

Reuters has peered into the details of the spending bill signed by president Obama shortly after midnight in Washington, and found that it contains many commitments beyond simply extending the debt limit.

Amid the 35 pages are $450m for Colorado flood relief and more than $600m for fire management and fire suppression, plus money to spend up paying benefits to veterans . There’s also an extra $1.2bn for a dam in Kentucky, plus fresh authority for the Department of Defense to continue to support African forces pursuing Joseph Kony and the Lord’s Resistance Army.

There’s also no pay rise for Congress, it says:

Also notable is what the 35 pages do not include.

Congress likely was wise to spell out that its members will not see any pay increase as a result of the deal. The bill states that members will not receive any cost of living adjustments during the fiscal year 2014 that began on October 1.

The East Coast of America is waking up to a new day with a functioning government and no imminent risk of stumbling into a debt default.

Bloomberg TV has been talking about the political ramifications of last night’s deal. Ian Bremmer, Eurasia group president, argued that a ‘grand bargain’ (of sorts) has been carved out:

Bremmer said:

There was a grand bargain – the Republicans have imploded, but [Barack] Obama has frittered away the first year of his second term as president.

Obviously not the long-term agreement on fiscal policy which is needed.

One important element of last night’s deal is that the House and the Senate will set up a ‘budget conference’, which will deliver a report by mid-December.

Peter Cook, Bloomberg’s chief Washington correspondent, says that this panel will meet this morning to start discussing long-term fiscal plans.

They’re going to meet over breakfast… to try and get things off on the right foot.

No surprise that the cost of insuring US government debt against default has fallen this morning.

A one-year credit default swap (which would pay out if America defaulted) has dropped by 7 basis points to 51 bps, data provider Markit reported.

It had hit a two year high of 75 basis points yesterday (meaning it costs $75,000 to insure $10m of Treasury bills).

More importantly, perhaps, this is still more than the cost of a five-year CDS contract (which is trading at 32 basis points).

A one-year CDS contract should be cheaper, given the risk of long-term uncertainty. But in America’s case right now, the uncertainty is still in the short term.

Market update

Three hours into the European trading day, and the main stock markets are all in the red as the US debt ceiling deal leaves investors underwhelmed.

The French and German stock markets have fallen by 0.7%, while over in Moscow Russia’s main index has slid by 1.5%. Britain’s FTSE 100 is slightly lower.

David Madden, IG analyst, reckons that “traders are worried that the US will be downgraded” by Fitch, which two nights ago put America’s AAA credit rating on negative watch.

Madden adds:

Stock markets are not longer celebrating the deal that was struck yesterday between the Democrats and Republicans to avoid an armageddon style default – the focus has now switched to the US credit rating as traders wonder whether or not it will remain unchanged.

The agreement reached has indeed brought about an end to the shutdown and pushed back the debt ceiling talks until February, but investors simply view this as the government hitting the snooze button yet again.

Ratings agency Fitch is edging even closer to lowering the US credit rating, and if other agencies follow suit we could see a repeat of August 2011*.

* - when S&P became the first agency to downgrade the US, after the previous debt ceiling deal was raised.


The US debt ceiling deal continues to get an underwhelming response in the financial world, with the FTSE 100 still in the red (down 20 points at 6551).

As flagged up at 8.37am, City experts are worried that Congress only extended the US debt ceiling by four months, and only fund the Federal government until January.

Many fear a rerun of last month’s battles, once US politicians sit down to consider longer-term budget .

Luke Bartholomew, investment analyst at Aberdeen Asset Management, calls it a “a hollow victory for Capitol Hill”:

The debt ceiling standoff has ended with the starting gun being fired on negotiations on automatic budget cuts in the form of the sequestration. That could be a good thing if it means some of the more arbitrary cuts are replaced by reasoned ones. But that will require Republicans and Democrats to cooperate which can never be assumed.

The US can take a sigh of relief for now but the New Year could bring a dangerous sense of déjà vu.

“These budget talks have cast a cloud over the US’s international reputation and heaped pressure on the Fed. A decision to taper QE was expected in December but the government shutdown means the Fed is deprived of the very economic data it’s said it will base its decisions on.”

Here’s our latest news story on the US debt ceiling deal, and Christine Lagarde’s warning that America must stop flirting with disaster over its borrowing limits:

US shutdown: IMF chief calls for stability after debt crisis averted


British Gas hikes prices by 9.2%

Meanwhile, in the UK, British Gas has thrown more fuel on the debate over household energy prices by hiking tariffs by an average of 9.2%.

Parent company Centrica announced that gas prices will rise by 8.4%, while electricity bills will see a double-digit increase of 10.4%.

British Gas’s increase is even higher than the 8.2% increase announced by SSE last week. It comes less than a month after Labour leader Ed Miliband vowed to freeze prizes if he won the next election.

In a statement, British Gas said it was a ‘difficult decision’, and acknowledged that “hard-pressed households” are suffering as real wages keep falling.

Ian Peters, managing director of British Gas Residential Energy, blamed wholesales energy prices and charges imposed by the government.

“I know these are difficult times for many customers and totally understand the frustration that so many household costs keep on rising when incomes aren’t keeping pace.

We haven’t taken this decision lightly, but what’s pushing up energy prices at the moment are costs that are not all directly under our control, such as the global price of energy, charges that we have to pay for using the national grid that delivers energy to the home, and the cost of the Government’s social and environmental programmes.


Back on those reports that Dagong has downgraded the US credit rating — journalist Alexander Smith has got hold of the full statement, and uploaded it here.

Here’s a flavour:

For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency.

Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future.

Dagong should be calling me back at some point to discuss the situation….


Good economic news in the UK — retail sales rose by 0.6% on a monthly basis in September, twice as fast as expected.

The Office for National Statistics reported that spending on household goods jumped by 3.0% compared with August, while textiles and clothing spending was up 1.2%.

It’s another encouraging development, following yesterday’s drop in the number of people claiming unemployment benefit. It’s also a little curious, given wages continue to lag well behind inflation.

Last night’s deal to avert a US debt ceiling disaster should also cheer the high street, as the crucial festive period approached. Richard Lowe, head of retail & wholesale at Barclays, says Britain could enjoy a good Christmas:

September’s figures bring to a close a summer of good results and good levels of growth in the sector.

Looking ahead, the high street is already filling up with glittering displays to tempt shoppers in the lead up to what we expect to be a strong Christmas.

I’m still trying to find the full statement from Dagong. (its website keeps flashing up error messages).

In the meantime, Reuters’ IFR Markets bureau flags up that the agency also left the US rating on a ‘negative outlook’, suggesting it could cut the A- rating further.

Here’s IFR take, from the Reuters terminal:

Chinese rating agency Dagong has downgraded the United States to A- from A and maintained a negative outlook on the sovereign’s credit.

The agency suggested that, while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged.

“Hence the US government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future,” Dagong said in a press release.

Dagong’s ratings are hardly followed outside of China.

The agency also classifies most countries it follows very differently from major agencies such as Moody’s, Standard & Poor’s and Fitch.

For instance, like the major agencies, Dagong rates Norway Triple A. However, the US was rated A and the United Kingdom has an A+ rating with Dagong, while Moody’s for one, has the UK at and the US at Aaa, the highest level on the New York-based agency’s scale.

Yet, the Chinese agency is not alone in pointing out that the creditworthiness of the United States is not as good as it once was.

Yesterday, Fitch put the Triple A rating it gives to the US under negative watch.In August 2011, Standard & Poor’s downgraded the US to AA+ after a protracted debt ceiling debate in Congress brought the government to the verge of a shutdown.

Apart from the symbolic meaning of the downgrade, though, Dagong’s move is expected to have no effect on markets.

Although, as fastFT points out, the gold price has risen this morning:

Gold prices were higher after the reports circulated, with spot prices up $29 on the day at $1,310 a troy ounce.

Even before today’s reported downgrade, Dagong only classed America as a “High credit rating” nation, with a single-A rating. That’s several notches below AAA.

Why? Because Dagong has long been concerned that America’s national debt is too high, and questioned whether the US is really committed to repaying its creditors (as this Bloomberg story from 2010 shows) .


Dagong rating agency downgrades US- reports

China’s Dagong credit rating agency just downgraded America’s credit rating, following the short-term deal hammered out last night, according to reports.

Dagong has cut the US rating by one notch to A-, from A.

Dagong has warned that the debacle over the US debt ceiling shows America’s “incapacity” to solve its national debt crisis.

The agency also cited the damage caused by the shutdown on the US economy, saying America would probably have to actually borrow even more money to cover the lost economic activity.

Dagong isn’t one of the Big Three ratings agencies, so this shouldn’t send ripples through the financial markets.

And a cut from A to A- is less dramatic than losing America’s AAA credit rating (as Fitch is now threatening to do, and S&P did in 2011). But it shows the concern in Beijing over the situation.


After initial relief, the US dollar is also falling this morning. It’s lost half a percent against both the pound (which has risen to $1.603), and the euro ($1.361).

Reuters says the fall is due to traders pondering the damage caused to the US economy ($24bn of lost output, according to S&P)

This could make it harder for the Federal Reserve to slow its quantitative easing stimulus programme (which is pumping $85bn into the US economy each month).

“We would expect this impasse to shave off part of fourth-quarter growth and hurt consumer confidence especially from the government sector,” said Simon Derrick, head of currency strategy at BNY Mellon.

“What this does is push back expectations of Fed tapering to early 2014 and this is dollar negative.”

US debt deal – what the City experts

The broad reaction in the City is that the US deal is a short-term sticking plaster, not a long-term fix. Analysts expect more conflict on Capitol Hill.

 Michael Hewson of CMC Markets predicts another battle in January.

The compromise solution has the government reopened until January 15th, the debt ceiling raised until February 7th and a pledge to negotiate further deficits cuts by December 13th. While this staves off the immediate uncertainty it also means that we have to go through this entire circus again in the New Year.

Talk about kicking the proverbial can down the road, the only difference is we get to use the phrase with respect to the US instead of Europe. Isn’t irony sweet? Oh joy, Happy New Year everybody!

Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, believes the world economy will shake off the impact of the shutdown.

The shutdown of the U.S. government will probably not have helped Q4 GDP. Nevertheless the worldwide economic upturn remains on track going into 2014.

Anita Paluch of Gekko Markets reckons the Federal Reserve won’t rush to slow (or ‘taper’) its stimulus programme:

Good news – the tapering will be delayed, the bad news – the 11th hour deal is not a solution but just a problem postponed.

And Ishaq Siddiqi, market strategist at ETX Capital, says European stock markets are also suffering from weak corporate earnings.

 Overnight, we heard worrying news from IBM who blamed stalling sales in China as the reason for sliding group revenues. eBay meanwhile warned of tougher trading conditions in the US while Black & Decker blamed the US government shutdown as a reason to warn on profits.

In Europe this morning, we’ve another ugly set of earnings from the likes of Metso, Remy Cointreau [luxury sector posting poor numbers – LVMH missed expectations this week] while KPN shares are under pressure after American Movil pulls out its takeover bid for the Dutch telecom company.

European markets open lower as traders see trouble ahead

Shares are falling in early trading in Europe, as the US debt ceiling deal fails to cheer the markets on this side of the Atlantic.

The FTSE 100 has dropped 17 points, to 6553. The German DAX and French CAC are also down by 0.3%.

The City is disappointed that Congress didn’t agree a longer-term deal. Traders are already anticipating another bruising battle on Capitol Hill in early 2014.

Mike van Dulken, head of research at Accendo Markets, says there’s lots of work still to do.

The budget needs to be re-negotiated within 2 months, the government will be re-opened and funded for just 3 months and the debt ceiling issue pushed back for 4 months. The muted market reaction (US & European futures down) suggests them already pricing in a standoff re-run in Dec, Jan and Feb.

Neither party can be proud, although Democrats look to have the upper hand, showing prepared hold firm and blame ultimately being directed at Republicans (or at least factions) refusing to give up on their rejection of Obamacare.

Traders have also been digesting S&P’s estimate that the shutdown cost the US economy $1.5bn each day — that’s a lot of missed business for firms across America, and the globe.


Overnight, World Bank President Jim Yong Kim summed up the relief in the corridors of power, saying the global economy has “dodged a potential catastrophe”.

IMF: US must end the debt ceiling uncertainty

The International Monetary Fund has welcomed the news that Congress has raised America’s $16.7 trillion debt ceiling before its borrowing authorisation ran out, at midnight tonight.

But IMF chief Christine Lagarde warned that America must break the cycle of uncertainty over its debt limits. She also called for the ‘sequester’ (deep spending cuts) to be replaced by a less harsh method of fiscal consolidation.

Lagarde said:

The U.S. Congress has taken an important and necessary step by ending the partial shutdown of the federal government and lifting the debt ceiling, which enables the government to continue its operations without disruption for the next few months while budget negotiations continue to unfold.

Looking forward, it will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner. We also continue to encourage the U.S. to approve a budget for 2014 and replace the sequester with gradually phased-in measures that would not harm the recovery, and to adopt a balanced and comprehensive medium-term fiscal plan.

Earlier today our Australian economics blogger, Greg Jericho, held a Q&A on the debt ceiling deal and its implications for the global economy.

Here’s a flavour, on why the debt ceiling should be canned:

The main thing that needs to be done is just abolish the debt ceiling. The market doesn’t give a stuff about it being raised – the bond yields never go up because it is raised, they only go up when Congress threatens to block move for it to be raised.

But I can’t see it happening, purely because there are those who view it as a weapon in their arsenal that they can use to force spending cuts etc. But what today has really shown is that if the other side refuses to budget, the threat to allow a default ends up being an empty one.

Greg Jericho answers your questions on the US debt default crisis – as it happened

From Washington, my colleagues Paul Lewis and Dan Roberts report on how the deal leaves the Republican party licking its wounds:

The US Congress passed legislation to rescue the country from the brink of a looming debt default on Wednesday night, bringing an end to the two-week crisis that has closed large portions of the government and revealed deep divisions in the Republican party.

The bill, a temporary fix that will last only through to the start of 2014, passed easily with broad bipartisan support in the Senate, where Democratic and Republican leaders forged the agreement just hours earlier.

But it was able to pass the Republican-dominated House shortly after 10pm only with the support of Democrats. It laid bare a rupture between moderate and more rightwing Republicans, who triggered the crisis by using their budgetary leverage in what turned out to be a futile effort to undermine Barack Obama’s signature healthcare reforms.

Only 87 House Republicans voted for the bill. The party leadership was opposed by 144 members, including Paul Ryan, the former vice-presidential candidate and a key figure in Congress.

In brief remarks at the White House shortly before the House vote, Obama said he hoped the deal would “lift the cloud of uncertainty” that had hung over the country in recent weeks.


The state of play

My US colleagues live-blogged all the action from Washington (and quite gripping it was too).

Here’s their closing summary:

• The House and Senate both passed a bill this evening funding the government and raising the debt ceiling until early 2014.President Obama says he will sign it “immediately,” as in, tonight.

• The 16-day government shutdown is over. Government employees will receive retroactive pay for the shutdown period.

• Fiscal talks will now shift to a budget conference between the House and Senate, where a negotiated report is due by mid-December. The talks will be led by the budget committee chairs of each chamber, senator Patty Murray and congressman Paul Ryan.

• President Obama will speak tomorrow about his budget priorities. He claims that he’s willing to discuss “anything.”

• Speaker Boehner, despite passing a bill with mostly Democratic support, is not expected to lose his job. He even got a standing ovation from the House Republican conference today.

Congress passes bill to raise US debt ceiling and end shutdown – live


Relief as Obama signs spending bill to avert default

Good morning. America is returning to normality this morning after the deadlock in Congress over the US debt ceiling was broken.

Just after midnight East Coast time, president Barack Obama signed legislation to reopen the Federal government, fund its operations until January 15 2013 and extend the country’s borrowing authority for another four months, to February 17.

So, a short-term fix, but one which averts the danger of America defaulting on its debts and triggering a financial panic.

Hundreds of thousands of federal workers, many of whom have been idle for the past 16 days, are now expected to return to work — as businesses count the cost of a two-week hiatus.

The deal leaves the Republican party in some turmoil. The majority of its members in the House of Representatives voted against the bill, underlining the split between radical Tea Party members and moderate Republicans.

Shares on Wall Street roared ahead as the deal neared, and Asian stock markets have mostly risen overnight. Japan’s Nikkei jumped 119 point to 14,586, + 0.8%

We’re not expecting a big rally in Europe this morning, though. Most analysts reckoned Congress would do the right thing eventually. But the fact some members of Congress were prepared to risk a default may have caused lasting damage to America’s pivotal role in the global financial system.

I’ll be tracking the reaction to the deal over the next few hours, along with other events across the world economy, the eurozone, the financial markets and the business world.


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