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Thursday, December 20, 2012

A Quick Glance at News (20/12/2012)

Talks to avoid a U.S. fiscal crisis stalled on Wednesday as President Barack Obama accused opponents of holding a personal grudge against him while the top Republican negotiator called the president "irrational."

The Bank of Japan delivered its third dose of monetary stimulus in four months on Thursday in a prelude to more aggressive action next year, as it faces intensifying pressure from the country's next leader for stronger efforts to beat deflation.

The yen languished near 20-month lows against its U.S. peer on Thursday, but trading was choppy in thin conditions with yen bears possibly suffering a case of cold feet as the Bank of Japan's policy decision loomed.

The Bank of Japan has already shown its readiness to keep an ultra loose monetary policy but stressing its resolve to ease "unlimitedly" would make a difference, a senior Liberal Democratic Party (LDP) official said on Thursday.

Asian shares retreated from near 17-month highs on Thursday and commodities fell as negotiations to avert a U.S. fiscal crunch turned to personal taunts, putting at risk a timely solution as well as the health of the world's largest economy

U.S. stocks sold off late in the day to close at session lows on Wednesday as talks to avert a year-end fiscal crisis turned sour, even as investors still expect a deal.

Asia’s benchmark equities index has risen about 14 percent this year as central banks from the U.S., Europe, Japan and China took action to spur economic growth

The gauge traded at 14.7 times average estimated earnings compared with 13.8 for the Standard & Poor’s 500 Index and 12.8 times for the Stoxx Europe 600 Index, according to data compiled by Bloomberg

Australia’s government said it’s unlikely to deliver a pledged budget surplus this fiscal year as weaker growth and a strong local currency curb tax receipts, a setback for Prime Minister Julia Gillard before an election due in late-2013.

Oil fell from the highest level in two months in New York on speculation its four-day gain was exaggerated as budget negotiations faltered in the U.S., threatening the economy of the world’s biggest crude user.

Australian stocks advanced on Thursday, building on highs not seen since July 2011. The S&P/ASX 200 index edged up 0.1% to 4621.50, with most sectors trading higher.

Where next for the Australian dollar?

SYDNEY (Market Watch) — The Australian dollar has survived a drop in commodity prices and lower interest rates this year, but will the world’s fifth-most-traded currency head lower in the new year?

The “aussie”— which accounts for around 7% of global foreign-exchange trade — presently trades well over the $1.05 mark, near where it started the year.

Relatively high domestic interest rates, a triple-A credit rating and an outperforming economy have laid the foundations for the currency’s strength over the last few years, after it started 2009 at around 70 U.S. cents.

It stumbled mid-year to as low as 96 U.S. cents, when a drop in commodity prices raised questions about the future strength of Australian exports, and downward pressure on interest rates eroded some of its yield advantage against rivals.

Since then, however, iron-ore prices are off their worst levels, thanks to signs that China’s economy is stabilizing, and while interest rates are still well above levels found in many other developed world economies. But analysts say these issues alone don’t fully explain the recent revival in the Australian currency’s fortunes.

“The simplest answer is that some other factor matters more, and the likely candidate is the risk-on/risk-off dynamic,” HSBC currency strategists said in a recent research note.

“Even a cursory glance at the evidence suggests a strong and consistent relationship between the Australian dollar-U.S. dollar pair and the performance of the U.S. equity market, in turn a reliable proxy for the wider risk-on/risk-off phenomenon,” the strategists said.

From 2009, the Australian dollar’s rate against the U.S. currency has shown a more than 75% correlation with moves in the S&P 500 according to HSBC’s research.

Fed matters

Risk-on/risk-off trading in the last few years has in itself largely resulted from massive central-bank liquidity injections into financial markets, where the sheer weight of money has created its own trading force. Money has found a home in many assets, pushing prices up.

One of the banks leading the way in quantitative easing has been the Federal Reserve, which has had something of a knock-on effect on the U.S. dollar’s performance against rivals such as the aussie.

After their initial push following the 2008 global financial crisis, the central banks again ramped up policy-support measures and liquidity in the latter part of this year, with the Fed recently pledging billions more a month to support the U.S. economy, giving fresh legs to the Australian dollar.

The Australian dollar “is still being influenced by global factors,” said Alvin Pontoh, currency strategist at TD Securities, who has an end-2013 target of $1.03 for the aussie.

Pontoh believes the Fed is likely to extend quantitative easing at least to the end of next year, and the European Central Bank will also likely cut interest rates further.

Tuesday, December 18, 2012

Gold drops on stalemate in U.S. budget talks

Precious-Gold dropped on Tuesday trading on renewed worries regarding the so-called U.S. fiscal cliff as officials did not reach a solution yet, thereby threatening both U.S. and global recovery.

The shiny metal slipped for a third straight session to trade around $1704.66 an ounce, where it found support at $1701.66, which represents the Simple Moving Average (SMA) 100 level on the daily charts, after it fell from a high of $1717.35.

The trading range for today is expected among the key support at $1690.00 and the key resistance now at $1730.00.

Still, the main director of market sentiment is the U.S. fiscal cliff; it threatens the world`s biggest economy of falling back into recession if $607 billion of tax hikes and spending cuts start in January.

Yesterday, House of Republicans suggested a $2.2 trillion deficit-cutting plan, yet White House Communications Director Dan Pfeiffer replied that it “does not meet the test of balance.”

With the sluggish progress seen in U.S. budget talks the tensions are heightening and weigh on shares and commodities.

Gold is now moving with the U.S dollar as they both face downside pressure of the little progress in the budget negotiations.

The dollar index plummeted today to record a low of 79.80 after opening today`s trading at 79.89.

On the other hand, the euro is resuming its upside direction to six-week high versus the greenback after Greece said yesterday it would spend 10 billion euros to buy-back bonds via a modified Dutch auction.

Euro area finance ministers expressed their confidence that Greece will handle a successful bond buyback on Dec. 7, lifitng up expectations the debt crisis is abating.

Later in the day, European Union finance ministers will meet in Brussels to continue their pursuit to ease the three-year-old debt crisis.

Crude oil for January`s delivery inched down to $88.68 per barrel compared with the day`s opening level of $88.90.

Among other precious metals, silver retreated to $33.28 from the day`s opening of $33.32, platinum ticked down to $1592.75 from $1594.25, and palladium inched up to $678.60 from $678.40.