Vantage FX | Fiscal Cliff concerns push US dollar higher | 28th November 2012

November 28, 2012

The positive outcome from European policy makers with regard to Greece dominated Asian and European trade in stocks and FX markets but US traders failed to take up the bullish cudgels in more cautious trade.

It would be easy to dismiss what seems to be the daily ebbing and flowing of sentiment about the Cliff as just noise and ex-poste rationalisation of what had occurred overnight but th fact that companies are now starting to issue special dividends to shareholders as a way to forestall selling of their stock as the cliff approaches speaks volumes. It is clear that the concern in the US and among companies and investors is real.

Which is why even with data from the US overnight better than expected on all counts it had little impact. The Durable goods data came in at flat versus -0.6% expected and ex-transport it was up 1.5% against expectations of a -0.5% print. Case Shiller Home index was up 3% yoy, consumer confidence jumped a point and a half to 73.7 and the Richmond Fed manufacturing index sat at 9 this month against -2 expected and much better than the -7 we saw in October. The positive impact of this data was however lost in the maelstrom of the weak OECD outl0ok (see below) and the vortex that is the Fiscal cliff discussions. For all the challenges facing the US economy at present at the very least we can say that a lot of the data is printing better than expected as you can see in the chart below which maps the Citibank Economic surprise index.

Turning to the OECD even though it is a bit late to the party given the 6 monthly gaps in their forecasts it has downgraded its growth target for 2013 for its member countries from 1.6% in May to 1.4% and gave its most dire warning since the depths of the GFC with the Chief economist Pier-Carlo Padoan saying,

“After five years of crisis, the global economy is weakening again. The risk of a new major contraction can’t be ruled out.”

Stocks

In Europe the Greek deal dominated and stocks were higher in London, Frankfurt and Paris with their indices rising 0.22%, 0.55% and 0.03% respectively. The Greek deal we have to say is good news for the moment and Greek got lower interest rates, more money and an interest rate holiday but can it really get down to the 120% of debt it is aiming for or will we be back here again for a 4th bailout next year? Probably yes but perhaps not till after the German election in 2013.

In the US the markets were under a little pressure all day relative to the positivity leading into the US trading day and they started to sell off a little harder once Democrat Senate Majority Leader Harry Reid said he was disappointed with the discussions, or lack their of, with the Republicans. So with 30 minutes to go before the close the S&P 500 is down 0.24% at 1402, the Dow is off 0.43% and the NASDAQ has fallen just 0.04%

Keep an eye on China and Chinese shares – yesterday the Shanghai composite index was down another 1.3% as the slide that has been in place for a year or more continues. Indeed as you can see in the chart the Shanghai is heading back toward the lows of late 2009. As I say worth keeping an eye on.

Elsewhere on Asian stock markets yesterday the bigger indices were all higher with the exception of the Hang Seng which fell 0.08%. The Nikkei  rose 0.37%, the ASX All Ords was up 0.67%, the Kospi rose 0.87%. The Straits Times rose 0.25%.

FX Markets

It was reversal time in the past 24 hours on Global FX markets as the news of the Greek deal saw the Euro and Aussie Dollar rally initially but then lose ground once it became clearer that the US markets had their own concerns about which to worry. So the EUR rejected the high at 1.3009 and now sits at 1.2932 for a fall on the day of 0.29%. The AUD has been more stable and even though it made a marginal new high for the range at 1.0489 and has pulled back to 1.0457 it is only down 0.06% over the past 24 hours.

It’s not the prettiest chart you’ve ever seen and the reversal from the highs suggests this remains a range trade for the AUD and in particular if equities aren’t managing to rally any further at the moment then it is going to struggle a little. The 4 hour charts suggest a move back toward 1.0410/15.

Elsewhere the USDJPY had a positive day as the USD did better across the board and we’ll have to see over the next 24 to 48 hours if the pullack over the previous three days was just a countertrend rally or the start of something bigger. For mine only a move through the high of last week would turn the outlook sharply positive again. But USDJPY is up 0.18% to 82.20 while GBP is largely unchanged at 1.6022 but looking a little wobbly.

Commodities

Silver couldn’t push through trendline resistance again overnight and is down 0.45% to $34.05 oz, Gold is off 0.42% to $1745 oz and Oil is down 0.62% to $87.19 Bbl. Clearly in these process you can see the impact of the US dollars move overnight as much as anything but equally as any cursory glance at the Vantage Silver chart we posted earlier this week would show technicals and trends still matter too.

In the Ags it was a huge night again as the rally continues in wheat on weather related concerns. Wheat for December rose 2.56%, Corn was up 1.44% and Soybeans rallied 1.65%. The fact that Corn and Wheat held firm when Soybeans tanked recently underlies the strength of this complex at the moment.

Datawise Construction work for Australia is due today and then German CPI tonight before we see Home sales and the Beige book from the US..

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

NB: Please note all references to rates above are approximate and should not be used for trade reference.

Catch me on Twitter @gregorymckenna or @FX_Global

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