- Probably a wait-and-see day ahead of the US election result.
- Reserve Bank of Australia surprises the market by keeping rates unchanged.
- Influential US investors issue warning about the US fiscal cliff.
All focus is currently on the US election and not least on how the outcome will affect the budget negotiations in December ahead of the fiscal cliff. Yesterday a group of influential asset managers and pension funds issued an urgent warning that if the politicians do not come up with a resolution to the fiscal cliff, confidence will be further eroded.
Especially, a narrow victory for Obama in light of the fiscal cliff is viewed as a risk factor by many investors. The race is still very close but mos polls give Obama a small majority in a majority of the all-important swing states.
The meeting in Mexico might be overshadowed by the US election but it is noteworthy that the G20 called for a "pace of fiscal consolidation that is appropriate to support recovery." The Statement underlines that the rhetoric of the G20 leaders and the IMF has become less focused on austerity. For the first time in three years the focus was not solely on the eurozone debt crisis as the G20 Communiqué also contained a clear warning about a sharp fiscal tightening (fiscal cliff) in the US.
This morning the Reserve Bank of Australia (RBA) surprised the market by keeping its benchmark rate unchanged at 3.25%. We had in fact been calling for unchanged rates but according to Bloomberg a clear majority of analysts had been expecting a rate cut. Central bank governor Stevens said after the announcement that "the US is recording moderate growth, while recent data from China suggest growth there has stabilised." The acknowledgement from RBA that China has stabilised might help to support risk appetite today. The Aussie dollar rallied after the announcement and AUD/USD rose to 1.0435, the highest level since September this year.
US equity markets opened in red yesterday but actually managed to close slightly higher as Apple said that demand for the iPad mini outstripped supply and as the services PMI indicator managed to stay well above 50. In general traded volumes were light, some 13% below the average over the past three months. It underlines that many investors are in a wait-and-see mode until they know the outcome of the US election. In general Asian equities are in red but also here volumes are light.
The euro has been under pressure the past couple of weeks and EUR/USD has now fallen below 1.28 for the first time since September. The FX market is nervous about the recent developments in Greek politics, the weak eurozone numbers and the fiscal cliff – all factors boosting demand for the US dollar.
To Read the Entire Report Please Click on the pdf File Below.