Investors Confused By Fiscal Cliff Negotiations
12.02 AEST, Thursday 29 November 2012
Investors Confused By Fiscal Cliff
By Miguel Audencial (Sales Trader, CMC Markets)
The Australian equities market opened the trading day relatively flat today as investors remained confused about US fiscal cliff negotiations. Higher than expected Australian new home sales and private capital expenditure figures may give traders a reason to place buy orders.
Last night House of Representatives Speaker John Boehner said he was optimistic that a deal would be made to avoid the fiscal cliff. However, just the day before, Senate Majority Leader Harry Reid said there had been little progress in Congressional negotiations. Either the US lawmakers were able to make massive headways in their talks during the day, or the two lawmakers are describing the same story in a different manner. Unfortunately I, like most traders, are more inclined to believe the latter.
The Dow managed to gain 106 points last night despite new home sales data being the only major US related economic release, which reported a figure below expectations. It appears traders are making their decisions based on what they read in the headlines of fiscal cliff-related news while economic fundamentals are placed on the back seat. This is likely to continue until the beginning of 2013 or when US lawmakers agree on a compromise. I would expect increased volatility in the market because of this.
Crude oil last night displayed the impact of fiscal cliff news on its price as it started the session lower based on Senate Majority Leader Harry Reid’s comment that little progress has been made on the negotiations. The price of crude oil managed to recoup some of its losses in the session after inventories reported that it declined last week compared to analysts’ forecast of an increase. It managed to gain some more ground after traders analysed Boehner’s more positive tone about negotiations to avoid the fiscal cliff.
German unemployment figures are due to be released tonight, while US quarterly GDP data, unemployment numbers, and pending home sales figures are expected on Friday night. Although these are important for investors, these numbers are likely to take a back seat once again to any fiscal cliff related developments.