Markets in the US did better overnight recovering from early losses after Republican leader and House Speaker John Boehner said that he is willing to put revenue on the table and is hopeful that a deal can be done over the fiscal cliff. This helped stocks turn around and also drove Aussie Dollar and Euro off their lows.
It is going to get frustrating over the next few weeks as markets ebb and flow with the words and hopes over the deal on the Cliff. Yesterday Senate Democrat Leader Harry Reid hit stocks with his warhammer when he critisised the Republicans and last night the opposite was true as noted above. There is only 33 days before the automatic spending cuts and tax hikes so thee pressure is growing to get a deal and President Obama said he is hopeful that a deal can ber done by Christmas – so there is a few more weeks of this to go but I would be really surprised if ultimately some deal is not done even if it is a European style can kicking exercise.
So consistent with the previous days trade the data in the US has been largely ignored. New Home Sales were down 0.3% last month but even though this was better than the expected fall of 0.8% the data was heaavily revised. This morning the Fed released the Beige book which was more pessimistic than the recent data has suggested on manufacturing
In Europe there seems to be some residual concerns about the Greek deal but even my 10 year old son knows that greece is still going to have problems with economic growth, austerity and debt for years to come. What the Greek deal did as its major achievement is take away the event risk of a near term Greek implosion or Grexit. So tho that end it’s a positive but doesn”t change anything economically for the zone.
At the close European stocks had come back late in the day with the big markets in London, Frankfurt and Paris in the black but Madrid was lower. The FTSE rose .06%, the DAX was up 0.15% and the CAC rose 0.37%.
In the US the Dow has recovered from heavy losses early when it was down 100 points to currently sit up 75 for a rise of 0.58% with 40 minutes of trade left. The S&P similarly recovered from early losses and is up 0.44% at 1405 while the NASDAQ is also 0.45% higher.
In Asia yesterday the Shanghai Composite was under pressure again off its lows at the close but still down 0.89% and the negativity was infectious with the Nikkei down 1.22%, the ASX All Ords fell 0.24%, the Hang Seng and Kospi fell 0.62% and 0.65% respectively. No doubt with the rally in the US markets Asian shares will have some catch up to do.
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%.
Euro and AUD were under pressure overnight until the comments from John Boehner turned sentiment around in stocks and with that also in Global FX markets. It is far from satisfying as an FX trader or strategist to recognise that these big macro markets are being driven by the up and down action of expectations of the fiscal cliff but that is the reality at the moment and it should be informing the way you trade and how you approach the market if you are a short term trader.
Theoretically and practically comments and sentiment on the cliff are mini black swans if you are a day trader – you never know when they are coming or from which direction as we have seen from both Harry Reid and John Boehner over the past 24 hours.
Looking specifically at the EUR it traded down to a low of 1.2878 before bouncing to sit at 1.2925 as I write. As you can see on the 4 hour chart above the bounce was solid and any further positives on the cliff are likely to support EUR.
Elsewhere it was the same for the AUD and it spiked higher along with stocks at the precise moment that they started to rally technically it is a bit mixed but if stocks are going to rally and if, its a big if, a resolution to the fiscal cliff comes eventually then it is probable that the AUD eventually drives higher. It remains well supported.
Elsewhere on Global FX markets the pullback in USDJPY continues and it looks biased back toward 81.37 which is the 38.2% fibonacci retracement level. USDJPY is down 0.32% on the past 24 hours for the biggest move of the big 6 currencies. The AUD is up 0.24% at 1.0470 and we will get a chance today to see how strong the selling up here will be again.
Silver and Gold both reversed again overnight losing 0.94% and 1.38% to sit at $33.66 and $1718 oz respectively. Silver did however have a very strong bounce off its low of $32.90 so there remains residual support but the overhead trendline we highlighted a couple of days back remains important resistance.
Crude was off sharply at one point but recovered when the EIA data was released and showed a draw of reserves of almost 400000 barrels against market forecasts of a 500000 barrel rise. At the close Crude was down 0.79% to $86.49 Bbl. Ags were quiet after yesterday’s big moves higher.
Datawise In Australia we get Private New Capital Expenditure which is important in the context of the mining investment boom (as it is now called) and we also get HIA New Home sales. In NEw Zealand we get business confidence later today and then tonight a raft of data in Europe including German Employment, British Mortgage Applications, and then Eurozone Economic confidence and then in the US thee next read of GDP for Q3 which I’m guessing and the market is expecting is going to show an upward revision .
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