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First Government Shutdown in 17 Years Sends Stocks Rocketing Higher


Today's financial recap and tomorrow's financial outlook.

Last night the US government shut down for the first time in 17 years, leaving almost 25% of the government's nonessential employees without pay. Then late last night, the House passed another version of a previous bill that would remove provisions from the Affordable Care Act. This morning, that bill was rejected by the Senate; any further negotiating has been rebuffed by the White House. Economists estimate that each month the government is shut down will shave 0.3% points off of the GDP.

Overnight, Japan's Prime Minister Shinzo Abe stated that he would raise the sales tax to 8% from 5% over the coming year, as had been previously announced. In response to the increase in revenue, the government would increase infrastructure spending by $51 billion and give tax breaks to companies.

China's official manufacturing index showed little gain from the prior month and fell short of estimates. In Australia, the central bank kept policy unchanged as had been expected. The bank noted increased financial volatility, due to the changes in US monetary policy, and reiterated that keeping the Aussie dollar lower would help rebalance growth.

US equities opened the day up very strongly and recovered all of yesterday's sell-off. Tech-related stocks were the top performers, and capital also shifted into health care. Interest-rate-sensitive utility stocks were the worst performers today, though they did finish in positive territory. Real estate stocks also showed solid performances.

Gold and other precious metals had a very bad day. Gold was down 3% for most of the day; silver was down as much as 5%. Two possible reasons for the sell-off were foreigners selling US-dollar-based assets and investors selling gold in response to a marginally higher Japanese yen.

In the pre-market, pharmaceutical company Merck (NYSE:MRK) reported that it was laying off 8,500 workers. Combined with the 7,500 layoffs announced earlier this year, Merck is laying off 20% of its workforce. The company will move its focus to productive R&D and immunotherapy drugs.

Tomorrow's Financial Outlook

Tomorrow's ADP private payrolls report will take on more importance, due to the Labor Department not reporting September's nonfarm payrolls on Friday. The economists' consensus estimate is for 180,000 payrolls created in September. In August, 176,000 payrolls were created.

The other report out tomorrow is the weekly mortgage applications index. Since interest rates have fallen over the last three weeks, applications have surged in both new purchases and refinancings.

The ECB will release its monthly monetary policy decision tomorrow morning before the US market opens. No change is expected in the policy rate. Recently, ECB officials have hinted that another LTRO is possible because there continues to be a lack of lending to small and medium businesses.

Also due out are Australia's new home sales and August trade balance.

The only major earnings report on the calendar is from Monsanto (NYSE:MON).

Twitter: @Minyanville

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No positions in stocks mentioned.

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