Good morning. Commodity markets made the headlines on Tuesday with a sharp fall in Gold, Base Metals and Oil due to a strengthening greenback and a shift into risk assets. The Federal Reserve released their monthly minutes indicating that the economy was on a road to recovery, with recent jobless claims and manufacturing data boosting core inflation. Bernanke ruled out the potential for negative inflation or deflationary pressure due to the supportive money supply. Economists have been mixed in their opinions over the recent bond purchasing program, with some speculating over the long term inflationary impacts. The Fed did note in their comments that there would be no changes to the stimulation measures, which include asset purchases. In the UK, manufacturing data surprised the market with a 58.3 level recorded for the period. This smashed initial economists’ forecasts spurring the pound to new highs against the greenback. Concerns over sovereign debt and Banking exposure to Ireland, had little impact on the currency during the session.
On the equity market front, the Dow Jones finished the day 20 points higher, whilst the Nasdaq fell 0.3%. Resource companies reacted strongly to the sell off in commodities with Vulcan Minerals, BHP and Vale all recording weaker prices. Vehicle manufacturer General Motors surprised the market with a 8% rise in vehicle sales in December. Traders pushed the stock 2.3% higher in the afternoon session. Book Store company Borders announced the resignation of two of its leading executives. This comes after the stock fell significantly in the previous session, with analysts highlighting tough market and sales conditions.
On the currency front, Reacting negatively to Australian manufacturing data and commodity weakness, the AUDUSD traded just above parity late in the session. Concerning figures indicated a contraction in the manufacturing sectors with a 1.3 point drop for the period. Economists have highlighted that a strong Aussie dollar has dented short term growth patterns and could have a longer lasting impact on inflation. The RBA over the holiday break have been keenly watching the data unfold both locally and overseas, in light of monetary policy announcements in the new year. Sustained manufacturing weakness could also impact other sectors and impact economic recovery. The AUDUSD traded at 1.0051.