House Passed Fiscal Cliff Bill, Dollar And Yen Deeply Sold Off On Risk

Markets opened 2013 trading with strong risk appetite on a breakthrough in US fiscal cliff negotiations. Yen and, to a slightly lesser, extent, the dollar, are broadly sold off in steep manner. A bit different from what happened around the end of last year, all major currencies participated in the rally including both European majors and commodity currencies.

The Senate has already passed a compromised deal, which excluded spending cuts, by 89-9. House is expected to vote on the bill that would eventually avert that automatic tax increase for most Americans that costs up to $600b and would eventually drag US and the world back into recession. At the time of writing, House has just pass the Senate bill by 257-167. The Congress approved bill will then go to President Obama for final seal off.

The compromised deal was worked out by Vice President Biden and Senate Minority Leader McConnell. Based on the deal, tax would be the same for most Americans while tax rate would jump from 35% to 39.6% on families earning over $450k per annum, or over $400k for singles. The level was raised from Obama's threshold of $250k. Nonetheless, it's somewhat addressed by an itemized tax deduction cut for singles making over $250k and families making over $300k. Unemployment insurance would be extended for a year for up to two million people.

Meanwhile, the issue of spending cuts was not addressed in the package. US President Obama said in a statement that "while neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay." And he pledged to "reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans."

Yen was the weakest currency in December and remains so as the new year starts. The new Economic Revitalization Minister Akira Amari in Japan said that the new BoJ governor to be appointed, after Shirakawa's term expires in April, should "share this sense of crisis and realize Japan is losing its position as a major economic power." While he some what said there is no intention to weaken BoJ's independence, he did emphasize the intention to "create a system where (the BOJ) can share the sense of crisis as an organization of the state."

On the data front, manufacturing data will be the major focus today. Eurozone PMI manufacturing is expected to be finalized at 46.3 in December. UK PMI manufacturing is expected to be unchanged at 49.1 in December. From US, ISM manufacturing is expected to rise from 49.5 to 50.2 in December.