Collinson FX Market Commentary- December 5, 2012 - Equity markets flat

by Collinson FX on 5 Dec 2012
Collinson FX market Commentary: December 5, 2012

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Equity markets were flat overnight with no earth shattering news to move the needle. Obama rejected the Republicans offer for a deal on the Fiscal Cliff insisting that taxes be raised on upper income earners. The soap opera will continue until the last minute allowing a less than satisfactory result to be accepted as an emergency measure like all solutions under Obama.

Increased taxes and spending will come exasperating the already critical debt/deficit situation and driving the once great US towards socialist Europe. In Europe EU Finance Ministers met to slap another plaster on the gaping wound and the EUR traded 1.3090.

The Global Economic position did not fill the RBA with confidence as they cut rates to a record low emergency level. 3% is the level of rates post-GFC and reflects the RBA's view of Global demand with storms gathering in Europe and the US.

This had little impact on the currency which actually rose to 1.0475 as expectations were met. Look for Australian economic data to drive local markets today and Eco-Political developments in the US and Europe longer term.

Collinson FX market Commentary: December 4, 2012

China's Manufacturing rose with the PMI breaking above 50, showing expansion in the sector. This is good news for growth and demand. In Europe Greece announced a debt buy back program to reduce the crippling debt that is drowning the country and dragging the EU with it.

Merkel also hinted that the Germans may accept debt write-off into the mix which further boosts the bailout package. It also removes what little credibility the EU had in terms of the single currency and rules surrounding member nations. Merkel will pay a price politically in next years elections for Greek bailouts and could pay the ultimate political price. In the US, Manufacturing contracted with the ISM falling below the all-important 50 to 49.5! This surprised many bulls who have been talking the sector higher but is instead likely to signal a trend of poor economic indicators as the economy slips back in to recession.

Theatrics continue with the Fiscal negotiations and nothing serious is likely to evolve until the deadline is upon them at years end. The drama is part of the political game being acted out with a solution likely, but that solution likely to be detrimental to the US and Global economy. Taxes will rise and the necessary cuts are likely to be largely ignored.

The EUR rallied on the news to 1.3050 and the GBP to 1.6100. Commodity currencies drifted despite the rally in risk assets with a string of weak economic data and prospects of an interest rate cuts in Australia. Australian PMI fell along with Retail Sales and Job Advertisements all confirming the deterioration in the local economy as costs rise and mining returns fall.

The RBA is likely to cut interest rates today which will relieve recent upward pressures on the currency. The KIWI tested 0.8200 although the AUD looks set to test 1.0400 on the downside. Look out for the RBA decision today to impact local markets with accompanying commentary likely to be food for thought!

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