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Economic Highlights

Sep 27: Debt Ceiling Grabs the Spotlight

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The unsettled Congressional debate about budget and the debt ceiling is dominating the headlines, offsetting this morning’s reassuring economic data. The Personal Income & Spending numbers for August came in-line with expectations, though the positive upgrade to the prior month’s numbers is modestly encouraging.

The University of Michigan Consumer Sentiment survey for September coming out a little later is expected to lose ground from the prior month’s level. But it’s reasonable to assume that the stock market’s attention will be squarely on developments in Congress.

The budget debate in Congress doesn’t appear to be moving toward a resolution ahead of the Monday deadline when the existing authorization runs out. We will have a government shutdown if we don’t have a fresh budget authorization from Congress by Tuesday. The markets don’t seem to be fretting the budget showdown as much as they do the debt ceiling issue, with the government on track to run out of borrowing authority in about three weeks time.

Hard to envision at this stage how the gap between the administration’s position of no negotiations on the debt ceiling and the House’s long list of demands will be bridged. There aren’t even any back-channel negotiations on the issue at this stage. Given this unsettled political backdrop, the Fed was perhaps justified in waiting a bit longer before starting the Taper.

In corporate news, Nike (NKE) came out with earnings and revenue beats, with strength in North America and Europe offsetting Chinese softness. Accenture’s (ACN) guidance came out short even though the consulting firm’s results beat expectations. The Accenture disappointment likely has some read-through relevance for IBM (IBM) and other players exposed to IT spending trends.

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