29 NOVEMBER 2012: BIPARTISAN STATEMENTS TURN MARKETS AROUND
Arne Treholt Vice-President of Business Development and Investments
“The fiscal cliff” seems over the last couple of days to have taken over completely as the dominant theme in the market. Statements on Tuesday from the Democratic Senate leader, Henry Reid, expressing disappointing progress towards a budget compromise with the Republicans had the markets to tumble. Yesterday it was the other way around. When president Obama expressed hope for a deficit deal by Christmas markets made a sharp U-turn. Dow Jones and Nasdaq which had started in red territory, ended 0,83 and 0,81 percent up with Hewlett Packard, Chevron, American Express and Pfizer showing the way as cracks seemed to surface in the Republican front against any tax rises. Stocks rallied when House Speaker and leading Republican, Joe Boehner, stated that a compromise was possible to avoid the “fiscal cliff”.
Whether these remarks reflect the reality of the negotiations is another story. The “fiscal cliff” of budget cuts and tax hikes dominate the discussion and influence a world market driven by psychology. Optimistic statements are immediately given a positive spin regardless of realities. The markets are going to live with these sentiments in the coming weeks and we are most probably going to see volatility and big day-to-day changes in stocks as well as commodities and currencies. Yesterday gold was hardest hit and fell 40 dollar an ounce during the session. It has recovered and trades at present at 1722. Also oil and silver took a hard punch to normalize around USD 110 a barrels for Brent crude and 33,70 for silver.
Euro/USD fell 70 points during one session and saw a low on 1.2875 before climbing back to 1.2955 and the same level as last Friday when the common currency was strengthened by the prospects of a debt deal on Greece in Brussels. By finalizing the deal Monday night the Euro reached 1.3010 to plunge back to yesterday’s low levels. The comments from US policy makers rekindled hopes of avoiding a crash landing on the US budget; and strengthened the Euro.
USD/JPY has also demonstrated great volatility during the last week. It is now trading at 82,14 bouncing back from a week high on 81,68 against the dollar on Wednesday. The dollar has corrected after reaching a 7 ½ month high of 82,84 last week. The yen has been under pressure over the last couple of weeks on speculations about aggressive monetary easing in Japan after the elections in mid-December. It is expected that USD/JPY is going to continue to trade in a range between 81 and 83 till we have seen the outcome of the elections.
Asian shares touched their highest levels in more than three weeks. The MSCI-index for Asia-Pacific jumped 1 percent after ending a seven-day winning streak on Wednesday. Also commodities are up on “optimism” for reaching a compromise on the US-budget. Nikkei in Japan and Australian shares were up as the Shanghai composite index as yesterday saw its lowest level since January 2009.
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