ETX Capital Daily Market Bite, 2nd January, 2013: Bumper Rally As US Avoids Fiscal Cliff
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Published on Jan 2, 2013
January 2nd, 2012, Daily Market Bite from Ishaq Siddiqi Market Strategist. HAPPY NEW YEAR!!
Immense New Year relief rally for global financial markets following the passage of a bill in the US to avert the full force of the fiscal cliff. 2013 has kicked off with a bang with bulls in full control of price-action -- the risk rally sees all your traditional investments in vogue [stocks EUROSTOXX making 16-month high, euro, commodities, peripheral bond yields, banks, miners et al] while core government bonds and US Treasury's take a beating. Traders are piling in on the encouraging news that the US economy did not fall off the cliff BUT it certainly is standing on the edge still.
US lawmakers passed a bill that mostly contained tax hikes but little on spending cuts so this is by no means the grand bargain/comprehensive plan markets were hoping for. That said, it is something given that we ended the last day of 2012 in Europe almost convinced that US lawmakers will not be able to avoid the world's largest economy from diving off the cliff. Lawmakers will now need to reconvene and address the unresolved issues which will prove to be toxic given the huge discord over spending cuts. That combined with the debt ceiling deadline in February, the next showdown in Washington has the potential to really unsettle financial markets in the mid-term. 1Q looks difficult, particularly as in Europe we have our own drama with Italian elections looming and the uncertainty there, despite it being overplayed at times.
For now, Italian bond yields have moved significantly lower in response but more encouragingly, Spanish 10-year yields are now at the lowest level since March 2012, before it all hit the fan in the country during the summer. The euro earlier hit 1.33 against a weak dollar while in the UK, the FTSE100 index spent the session flirting with the 6000 level and finally managed to kiss it -- bringing much cheer for the bulls in the City. UK manufacturing data had a hand at helping the FTSE100 dance with that psychologically important level. PMI manufacturing index posted a considerable gain in December, rising by more than 2 points to 51.4. Data from China overnight showed the world's second largest economy and one of the biggest consumer of commodities continue to gather steam in manufacturing activity, boosting resource shares in Asia which fed through into Europe.
It hasn't been too smooth on the euro zone front, with PMI manufacturing data revised slightly lower in December -- weaker than expected and a reminder that the 17-nation bloc is set to struggle for some time yet. Looking ahead, US futures will kick off at 11:00am GMT and are most certainly expected to leap sharply higher -- Wall Street in that case looks set for a day of bumper gains. Keep your eyes on the ISM manufacturing and construction spending.
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