- Signs that the US is moving closer to a deal on avoiding the fiscal cliff.
- Standard & Poor's cut its rating of Greece to selective default but might soon return its rating to junk.
- New Zealand's central bank keeps leading interest rate unchanged.
- ECB and Bank of England are both expected to be on hold today.
In the US there now are signs that Democrats and Republicans are moving closer to a deal that will avoid the fiscal cliff. A growing number of Republicans have indicated that they are willing to accept a deal that will allow the Bush tax cuts for the most affluent to expire in 2013, see New York Times. This is the most important demand by the Democrats in order to reach an agreement. In addition, a number of Republicans have suggested that negotiations about targets for longer-term expenditure savings and revenue increases should be left out of a fiscal cliff agreement before year-end.
These negotiations should be postponed to after New Year and should be connected to negotiations about raising the debt ceiling that the US could reach in February or March. Hence, the Republicans will use the threat of possible US default rather than the fiscal cliff to force longer-term expenditure savings on the Obama administration.
The US stock market Thursday finished on a slightly positive note on encouraging signs of a possible fiscal-cliff agreement and better-than-expected non-manufacturing ISM released earlier Wednesday. The positive sentiment has waned slightly in Asian trade. Asian stocks markets Friday morning were mixed with the Nikkei higher and the Shanghai slightly lower after its surge Thursday after policy statements from the new Chinese leadership.
In the FX market EUR/USD has moved slightly lower but there was no substantial impact when Standard & Poor’s Thursday evening cut its rating of Greece to selective default. However, Standard & Poor’s also said that it might raise its long-term rating of Greece back to "CCC" once the buyback plan for Greece’s debt is complete.
New Zealand’s central bank as expected left its leading interest rate unchanged at 2.5%, but NZD strengthened after the announcement on the back of a relatively hawkish statement. AUD also strengthened overnight after data showed a surprising large drop in unemployment.
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