Sentiments Remain Weak As US Equities Reverse Gains

Sentiments remained generally weak this week so far. US equities reversed earlier gains as Microsoft led a selloff towards the end of the session which saw the Dow closed -58.9 pts lower and S&P 500 was down -5.5 pts. Asian equities are mixed with Nikkei flat, HK HSI rsing over 180 pts, and Singapore Straits Times down -17 pts at the time of writing.

The JPY/USD continues to lose upside momentum against other major currencies but there is no confirmation of topping in these two safe have currencies yet. New Zealand dollar is the weaker one after poor retail sales data. UK will be the major focus in European session today with BoE inflation report and employment data featured. US will release PPI, retail sales and FOMC minutes.

Markets mind are clearly on Friday's meeting between US president Obama and Republican and Democratic leaders of Congress on the issue of fiscal cliff. Before that, Dallas Fed Fisher warned that Fed is not that "safety net" in case the Congress failes to reach agreements on the fiscal cliff issue. He urged the "fiscal authorities get their act together so we wouldn't be dependent on monetary policy" as there is a "limit" on what Fed can do. And he grieved that "the more we do at the Fed, the more excuses politicians have to do nothing." Also, Fisher warned that Fed "continue down the road of an infinite expansion of monetary policy."

Fed Vice Chairman Yellen said that the "highly accommodative policy path generates a faster reduction in unemployment than in the baseline." And she advovated that the "optimal policy" to implement the balanced approached, minimizing deviations from ifnlation and unemployment target, "involves keeping the federal funds rate close to zero until early 2016."

Meanwhile, she also express her strong support to the idea to "eliminate the calendar date entirely and replace it with guidance on the economic conditions." That is, Fed could "define a zone of combinations of the unemployment rate and inflation" and within which, Fed will hold rates near zero.

In Europe, ECB Vice Preisdent Constancio he's "against any kind of two-tier system" in banking supervision in eurozone. He said ECB wants "to retain some powers and right of initiative in the center of the single supervisory mechanism." Finance Minister Moscovici called for a "fully unified" supervisory system and he beleived that an agrement would be reached by the end of the year. Italian Finance Minister Grilli said that no bank will be left "out of this framework, all are part of it," and "ECB sets the rule and can intervene whenever."

Looking ahead, UK will be the center of focus in today's European sesion. Sterling has bee supported against euro on recent economic data, including Q3 GDP as well as yesterday's strong inflation data. BoE's quarterly inflation will be a key guidance to how likely would the central bank expand its asset purchase program.

Employemnt data will also be watched where claimant count is expected to drop -2.5k in October and unemployment rate is expected to rise to 8.0% in September. Also to be released are Swiss ZEW and eurozone industrial production. From US, PPI, retail sales, business inventories will be released, followed by FOMC minutes.