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CMC Markets – Evening Update 28/12/12

By David Fiander
Equities Risk Manager
CMC Markets Singapore

With the “Fiscal Cliff” deadline fast approaching, no agreement imminent, and comments by Senate Majority Leader Harry Reid stating that a compromise was unlikely before the 1st of January deadline, it was not surprising to see US stocks trading lower on the open overnight. With the White House and Congress both at loggerheads over plans and a very real and distinct possibility of the US economy going into recession without an agreement, markets had good reason to be spooked. Later reports that leaders would be meeting tonight and over the weekend however quelled the panic and enabled US markets to recover some of the lost ground in the last hour of trade and gave buoyancy to Asian markets today. On the news front it wasn’t all doom and gloom as reports showed new-home sales jumped to a 2 year high in November, while a separate government report showed first-time applications for jobless benefits fell by 12,000 to 350,000 last week, improving conditions that policy makers should consider when weighing up whether to push the US economy over the Fiscal Cliff or give it a helping hand.

Japan’s Nikkei again continued its surging run as the Index hit 52 week highs today, jumping 0.8% to close at 10,420, bringing the weekly gain to 5%. Toshiba Corp jumped 4.4% after reports that the company’s president said it was in talks to sell up to 16% of its Westinghouse Electric Co. nuclear-power unit. Toyota Motor Corp rose 1.8%, adding to yesterday’s 2.6% rally despite news that it agreed to pay $1.1 billion to settle a U.S. class-action lawsuit. Tokyo Electric Power Co. plunged 6.8% after reports yesterday the company would seek financial aid from the government to pay compensation for last year’s Fukushima Daiichi nuclear disaster.

The ASX 200 finished today 0.5% higher as it rounded out the week up over 1%.The benchmark Index is on track to post a gain of just under 15% for the year, which is the biggest yearly gain since 2009. The Miners factored strongly in today’s gains after strength in iron ore prices overnight, which hit 8 month highs at $139.40. BHP finished the day up 1.1% while Rio Tinto closed up 1.65%. Over in Hong Kong stocks managed to gain 0.1% bring weekly gains to 0.6% however top Hang Seng Index component HSBC Holdings PLC traded slightly lower after the shares hit their 2012 high earlier in the week.

All was quiet on the local Singapore market today as the benchmark index closed fractionally up by 0.1%. The big news out today was on Commodities firm Olam International after state investor Temasek Holdings raised its stake in the company, the stock was up by as much as 2.6% during today’s session. For the week the Straits Times index managed to finish up 0.8%.

The JPY/USD rate was one of the biggest movers on the week as the Yen lost 2.5% and sank to its lowest level since August 2010. Today it was another negative inflation reading and worse than expected industrial production figures which fanned speculation the Bank of Japan will have to heed the governments calls to step up cash infusions to end deflation and drive down the Yen. In today’s trade the Yen touched 86.64 per USD and traders are focussing on the 90 handle as Abe’s drive against deflation could definitely weigh on the Yen.

Gold had a very lacklustre week but did manage to rebound off its recent lows and snap a 4 week losing run, after losing close to $40/oz in the previous week. At last read it was sitting around $1,662 and if it finishes the month around these levels then it will be up over 6% on the year which will mark its 12th straight year of gains.

Looking ahead at news and data releases that will affect the market next week, the only thing that really seems to matter to market and the media right now is whether the Republicans and Democrats can come to an acceptable agreement to avert more than $600bn in automatic spending cuts and tax increases that start Jan 1, known as the fiscal cliff. Congressional leaders are planning to meet President Barack Obama tonight and House Republican leaders announced the chamber will meet on Sunday in attempts to get an 11th hour agreement together. Just a week or 2 ago there seemed to be real progress and real optimism that there would be agreement and while most investors believe they will be able to get something together in time, they have left it so late that there is a real possibility they won’t. All eyes and ears will be trained on news of progress in the negotiations.