The shutdown deal hit markets

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What started as a rather drowsy week, quickly escalated into something more upbeat, when on Wednesday a deal was reached in Washington: the Republican-dominated House of Representatives passed a two-year compromise-spending plan, aimed to prevent shutdowns in the future. The plan entailed a cut in the U.S. Government budget, leading to a reduced budget deficit. On the surface, this was good news for the markets, as the previous shutdown has had quite a devastating effect on the U.S. economy as a whole, and specifically the U.S. labor market. However, as the Fed is probably aware of the former fact and the brighter path it paves for U.S. employment, it was also natural to assume tapering is closer at hand.

Equity markets retorted with a swift, albeit moderate, nudge downwards; The S&P500 lost about -0.5% as the news spread. The same pessimistic sentiment continued to provide negative pressure on equity prices throughout the day. However, that was haled on Thursday as the Department of Labor’s Initial Jobless Claims surged to 368K, an increase of 68K from the previous week's revised figure of 300K. For reference, the last time Initial Claims saw such levels was nearly two months ago, on the week ending October 4th, shortly after the Government shutdown. Needless to mention, the hike of initial claims pushed markets back towards "taper off", at least for the time being. Not only that, Retails Sales figures also presented an allegedly positive 0.7% Month over Month increase, but this seems to be mostly the result of Auto sales, as Retail Sales (Less Autos) presented a more moderate 0.4% increase… so that also helped ease tapering concerns. 

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