US markets managed to squeeze out moderate gains overnight, with the impending fiscal cliff seemingly taking a back seat to a range of positive data points. Still, there was some ‘cliff’ positivity after President Obama said a deal was possible within a week, which appears to have provided some solace for markets.
The ISM gauge of services activity rose to 54.7 in November, up from October’s print of 54.2. Economists’ expected a moderate fall to 53.5. Factory orders increased 0.8 percent in October against estimates of a flat reading, but down from a 4.5 percent in September.
The exception to the positive data was the ADP employment gauge which fell slightly short of estimates to record 118,000 new private sector jobs in November. The gauge showed a drop of 39,000 from the 157,000 recorded in October, attributed to hurricane Sandy, which forced many on the employment sidelines as the cleanup got underway. The ADP gauge is considered a timely precursor to Friday official non-farm payrolls, which is expected to see the US economy add a total of 90,000 jobs in November.
The DOW and S&P rose 0.64 and 0.16 percent respectively.
Across the Atlantic, Euro-Zone retail sales plunged 1.2 percent in October to represent a contraction of 3.6 percent in yearly terms. The Euro came under pressure after hitting a 7-week high after a sale of Spanish debt was met with weaker than expected participation. At the time of writing the Euro is buying $1.3070.
Yen gets it’s just deserts; Dec 16 elections eyed
The biggest moves across currencies overnight came from the Japanese Yen, which recorded solid losses against major counterparts led by a fall against the greenback. The USDJPY pair made a convincing break to the upside of 82-figure once again to highs of Y82.45, following an early week retreat to lows of Y81.7. It was a solid month of November for the myriad of yen bears waiting in anticipation for the currency to begin to resemble Japan’s rather uninspiring fundamentals. After looking decidedly strong in mid September, prospects of a new government have driven the currency to lose over 5-percent against the greenback last month. The Yen remains near to 7-month lows against the greenback and has continues stick to similar multi-month lows against key counterparts the Euro, sterling and Aussie, as top leadership contender, Shinzo Abe repeated calls to spur inflation and weaken the Yen in an effort to resurrect Japan’s ailing economy. Abe has recently made clear his intentions to counter Japan’s deflationary spiral by unleashing “unlimited” quantitative easing measures. Under Abe’s leadership, the inflation target currently set at 1-percent is expected to double, and governing members of the Bank of Japan expected to be replaced by Abe’s pro-stimulus’ allies. A former Japanese Prime Minister and current leader of the Liberal Democratic Party, Abe is currently odds on favorite to take the reins after the December 16 elections. If Abe should succeed, his attentions are quiet clear – print Yen until inflation is above a target of 2-percent. The greenback back is currently buying 82.45 Yen.
Kiwi surges as RBNZ flags growth, inflation risk
As widely anticipated, the Reserve Bank of New Zealand kept benchmark interest rates steady at 2.5 percent. Although the bank flagged the downside risk to the economy given the strength of the New Zealand dollar, there was little to suggest the bank has entered a dovish phase. Instead, the statement by Governor Graeme Wheeler highlighted inflation risks, noting the bank is watching for a greater degree of inflation than earlier assumed. “The overall outlook is for stronger domestic demand and the elimination of current excess capacity by the end of next year. This is expected to cause inflation to rise gradually towards the 2 percent target midpoint.” Wheeler also noted the cash rate is likely to remain stable for “quite some period.” Although the high exchange rate may be diminishing inflation pressures, the bank highlighted the risk of inflation as the housing markets continues to gather momentum. The Kiwi quickly broke a pocket of resistance around the 82.6/7 US cent level and remains elevated at 1-month highs of 82.85 but faces formidable resistance into the 83-handle with an unlikely burst of energy like to be contained at 83.5 US cents.
A$ hits the wall ahead of key jobs data
All things considered, it’s been a solid run for the Aussie in times with Tuesday’s policy decision inspiring a rally in defiance of rate cut. Nevertheless, a significant short squeeze failed to propel the local unit above the wall of resistance of 104.8/9 US cent levels and it appears residual euro weakness overnight has put the Aussie under slight pressure once again, despite respectable gains from risk barometers such as US equities. The day ahead will see the much anticipated November jobs data on the docket, which is expected to show a flat reading after a net +10,700 jobs in October. If history is any guide, estimates will be off the mark therefore a defining factor for the Aussie’s short term trajectory. Robust resistance just shy of 105 US cents should keep the upside contained, while a move the downside should see previously held support around 104 US cents contain or slow the descent. Nevertheless, the only real certainty here is volatility, with any significant deviation from estimates creating an opportunity for the local unit to break out from short term technical milestones. At the time of writing the Aussie dollar is buying 104.6 US cents.