US: The rising risk of a government shutdown is casting a shadow over financial markets. Our base case is that any shutdown would not last long because the event would put a lot of pressure on both parties to find a compromise, which suggests that the effects on the economy would be limited. However, there is obviously a lot of uncertainty about this and a second fiscal deadline – in the shape of the debt ceiling – is approaching.
Big Picture: A gap has recently opened up globally between confidence indicators and the harder data, as confidence has improved noticeably while the harder data is lagging behind. This divergence cannot last long. Either confidence will fall back soon or the harder data will pick up. Last week’s data did not provide decisive information about how this gap will be closed. We continue to judge that the global economy is accelerating.
FX: We have revised our dollar forecasts down on the 3-month horizon, given the Fed’s delay of tapering and the economic and political uncertainty in the US. However, we continue to see a convincing case for a stronger dollar going forward and have left our 2014 forecasts in place.
Asia: China continues its reform agenda. On Friday, China’s authorities provided more information about the pilot Shanghai Free Trade Zone, which aims to open up the services sector and encourage FDI. We think that the impact of this plan will be modest given that it is a pilot programme, which will be rolled out only gradually.