by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a note on the high likelihood of a federal government shutdown starting tonight. We next review several other international and US developments with the potential to affect the financial markets today, including a US-Swiss deal that should allow Switzerland to keep intervening in the currency market to hold down the value of the franc and new Chinese retaliatory measures against the US’s new port fees targeting Chinese ships.

US Fiscal Policy: Yesterday’s meeting between President Trump and the top Republicans and Democrats in Congress broke up with no deal on a short-term funding bill to avert a partial federal government shutdown starting Wednesday. Democrats continue to push for restoring billions of dollars of healthcare spending. Republicans say they’re willing to discuss the issue, but not under the pressure of a deadline. If it happens, a shutdown could potentially disrupt financial markets and would likely postpone the monthly labor report due Friday.

US Artificial Intelligence: Fortune magazine today released its first-ever “AIQ 50” list, which ranks Fortune 500 companies generating significant and measurable impact with AI. In a surprise, many of the firms on the list aren’t in technology at all, but they have been at the forefront of implementing and leveraging AI in their financial, manufacturing, mining, or retailing operations. The top 10 companies on the list are:

1. Alphabet
2. Visa
3. JPMorgan Chase
4. Nvidia
5. Mastercard
6. Coca-Cola
7. ExxonMobil
8. Amazon
9. Ecolab
10. Wesco International

United States-Switzerland: The US and Swiss governments yesterday signed an agreement not to “target exchange rates for competitive purposes,” although the document also recognizes that market interventions are a valid tool for addressing currency volatility or “disorderly” moves in exchange rates. The deal is being taken as a green light for Switzerland to keep intervening in the currency markets to hold down the value of the franc against the dollar.

United States-China: The Commerce Department yesterday said its “entity list” of foreign firms subject to export controls would be expanded to include the subsidiaries of any named entities. The entity list isn’t focused only on China, but Chinese entities make up a large share of it. Therefore, the move will probably be a further source of tension in the US-China relationship and could potentially invite Chinese retaliation against US firms.

Australia: The Reserve Bank of Australia today held its benchmark short-term interest rate unchanged at 3.60%, as widely expected. The central bank has cut rates three times since February, but it said rebounding economic activity and an uncertain outlook justified holding rates steady today. In response, the Australian dollar has appreciated about 0.5% so far today, reaching $0.6611 and continuing its upward trajectory that started in January.

China: The official purchasing managers’ index for manufacturing rose to a seasonally adjusted 49.8 in September, beating expectations and rising from 49.4 in August. Like most major PMIs, the official China indicator is designed so that readings over 50.0 signify expanding activity, so the latest reading suggests Chinese factory activity is now basically stagnant or declining only slightly. The modest improvement suggests the manufacturing sector is seeing some improvement from government stimulus and relative stability in the US-China trade war.

China-United States: Beijing yesterday released new measures to retaliate against the US’s new port fees for Chinese-owned and Chinese-operated ships calling at US ports. The new Chinese measures will allow Beijing to impose special fees or restrictions on US-connected ships trying to access Chinese ports. The US isn’t a shipping power, so the number of affected vessels could be small. However, the rules may allow Beijing to take an expansive view of what US-connected ships could be targeted, potentially making this a more important issue for shippers.

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