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Holiday Season, Year End and the US Fiscal Cliff are all in full Bloom

December 3, 2012

With Black Friday behind us, and Cyber Monday over and long forgotten, traders look at the first trading day of December. Holiday season, year end and the US fiscal cliff are all in full bloom. Market attention will focus on US lawmakers. Over the week, Fox News interviews with political leaders all came to the same conclusion and that was there is a big difference between Democrats and Republicans with little headway as the days to the financial time bomb tick down. Markets and economists, business leaders and traders are all sure that policy makers will reach a last minute agreement as they always do. It seems that these guys thrive on political drama and as long as they can remain in the headlines and push their own agenda they will hold out to the last minute.

stock trading newsIn normal times, this week’s slew of US economic data could serve as a jumping off point for a rally in the stock market. December is historically a strong month for markets. The S&P 500 has risen sixteen times in the past twenty years during the month. But the market hasn’t been operating under normal circumstances since November 7 when a day after the US election, investors’ focus shifted squarely to the looming “fiscal cliff.” Investors are increasingly nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the US economy into a recession. A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday. Greece’s debt-buyback operation may extend to holders of almost 4 billion ($5.2 billion) of government bonds who opted not to participate in the country’s debt restructuring earlier this year, the biggest in history. The key focus this coming week will be the FOMC and the possibility of more QE3. No one is sure what Mr. Bernanke has in store for us. The dollar index, which tracks the greenback against six major currencies, traded at 80.15 on Friday and remains weak in early Asian trading as the US financial problems weigh on the dollar this morning.

The surprise ending of last week, seemed to be ignored by traders. The European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) were downgraded by Moody’s Investors Service, which cited a high correlation in credit risk present among the entities’ largest financial supporters. The ESM was cut to Aa1 from Aaa, while the EFSF provisional rating was lowered to (P) Aa1 from (P) Aaa. The EFSF has about€161.8 bn (USD210.1 bn) of bonds outstanding. The euro continued to climb on Monday morning to trade at 1.3038 adding 52pips, the euro has been unable to sustain the 1.30 level. The Euro edged higher, on ECB President Mario Draghi’s comments that the euro zone recovery would come in the second half of 2013.

Positive data releases from China showed economic expansion, which will help buoy traders’ sentiment today. The AUD and the NZD have shown little response to the positive news, with retail sales tumbling in Australia and both the RNZ and the RBA making rate decision this week.

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