Taper Talk driving Markets, Euro momentum fading

December 16, 2013

Interesting end to the week as markets focus on the FOMC meeting this week and the increased chances of Taper. Pimco’s Mohammed El Erian reckons the chances of the Fed tapering this week are 50:50 while former Fed Vice Chairman Donald Kohn reckons it is 60:40 in favour of tapering.

It is an interesting process the Fed is going through so my  view is that whether they taper or not is less important than the communication around this week’s meeting and their intentions going forward. It is a fine line the Fed is walking as the US economy heals and bond rates head toward the critical 3% region in 10 years.

So watch the words the Fed uses later this week.

Anyway on Friday stocks in the US recovered a little lost ground but still managed to close the week in the red. At the close the Dow was up 16 or 0.10% to 15,755. The Nasdaq just clung to the 4000 level finishing up 3 to 4001 and the S&P 500 was down 1 point to 1,775.

It is also worth noting that Reuters reported that US stock mutual funds saw their biggest outflow this year last week with $6.51 being pulled by investors.

I’m still short the S&P 500 and my process suggests further weakness but I have to say the market is holding in rather nicely at present all things considered.

In Europe stocks closed the week mixed with the FTSE off 0.08% to 6440, the DAX was 0.12% lower at 9006 and the CAC fell 0.22% to 4060. Fora change Milan and Madrid hardly moved on the day gaining 0.01% each.

Here at home the ASX the December contract lost another 15 points to 5080 bid while March lost 14 to 5050 bid making it clear what futures traders think is going to happen on the ASX in the first 3 months of 2014.

Some signs the Australian market is trying to stabilise but the trend is still down for the moment. 5105 key short term resistance and a break of last week’s low opens up the id 4800 region.

On FX markets there was a little reversal of fortune for the US and Australian dollar clawing back a bit of the ground they lost over the week. In the end the Euro was 0.1% lower at 1.3741 but it had been much stronger earlier. Likewise the USDJPY had been a lot higher before closing at 103.19 and the Aussie is still pressure but closed the week at 0.8962. Watch out for the minutes of this month’s board meeting on the Aussie due Tuesday.

I’m short Euro now at 1.3750 but it has to break 1.3700 to kick on significantly – topside momentum is fading though.

On commodity markets Nymex crude was a little lower down 0.92% at $96.47 Bbl, gold rose 0.79% to $1239 and is caught in a $1220-$1265 range for the moment. Copper is very strong up at $3.35 lb. On the Ags corn took a beating dropping 1.81% while wheat went out in sympathy dropping 0.68% but Soybeans traders took beans up 0.28%.

On the data front today we get Tankan in Japan which used to be important before Abenomics but has lost its edge. But honed to a fine edge is the HSBC Chinese manufacturing PMI which is due out in the preliminary form for this month along with a raft of global Markit and HSBC PMI’s tonight.

In the US we get non-farm productivity and unit labour costs as well as the New York Empire manufacturing index and the Markit PMI for the US. Also important will be the US TIC flows which will inform the market on what investors have been doing with regard to the US and Us markets over the past month.

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