Market Insight: Edge Capital Markets
Market Insight
By Bryn Griffiths (CEO, Edge Capital
Markets)
Equities
Global equities saw capital
inflows this week despite the unnerving events of the later
part of the week where evidence of the gulf between the
Democrats and Republicans over the budget discussions were
realised by the market. Republican House Speaker Boehner
decided he would look to take a plan B to the House to show
signs that progress were being made. This plan B involved an
increase in the tax rate on those earning in excess of
US$1m. At this stage Obama is pitching for a tax increase on
those earning over US$400k. The end result was that Boehner
withdrew the vote from the House before it was presented as
it was internally scuttled by his own party whose position
remains that there is be no increase in taxes on the higher
income earners. This news shook a market that was expecting
a pre Christmas gift of an agreement. The after hours
futures markets reflected investors concerns immediately
with the S&P futures contract dropping 45 pts (3.1%) in a 20
minute period. Prior to this announcement the US equity
markets were looking to close another week with a healthy
gain. With the pre Christmas sessions in the House and
Senate now closed till after Christmas, investors will now
have to wait till then to see what can be done to resolve
this issue. Media reports have already started indicated
that Obama is putting together a bill to be passed to delay
the US$600bln of tax increases and benefit cuts, to give
them more time to negotiate. This does seem a tad odd given
the amount of time it has already taken to get to the
stand-off we are seeing – It’s hard to see what any
extra time will do to hasten the outcome. Expect more
volatility through to mid January as investors and dealing
rooms shut down for the holiday season.
Weekly Moves: Australia 200 +0.8%, Hong Kong -0.5%, Japan +2.1%, China +0.2%, France +0.6%, Germany -0.7%, UK +0.3%, Dow Jones +0.4%, S&P500 +1.2%, Nasdaq +1.4%
Currencies
The
US dollar saw minor inflows this week with the US Dollar
index closing up 0.1%. Demand for US Dollars following the
delay in the US Budget talks saw investors taking profits
from the recent bout of weakness to go into the holiday
sessions with reduced exposures. Certainly the risk-off
sentiment hit the NZDUSD and AUDUSD the hardest with the
Kiwi closing the week down 2.5% and the Aussie closing the
week down 1.4%. What was an interesting move was that the
Yen weakened against the USD during this volatile period.
This has been the opposite in recent months, so it appears
the strong statements by Japan’s newly elected Prime
Minister Abe indicating his desire to manufacture a weaker
Yen to save their export sector has hit the right nerve
amongst investors.
Weekly Moves: AUDUSD -1.4%, GBPUSD
+0.0%, EURUSD +0.2%, NZDUSD -2.5%, USDCAD +0.7%,
USDJPY
+0.9%, USDCHF -0.2%
Interest Rates
This week saw
continued outflow of capital from the global bond markets as
investor’s seemed to be looking through the political
stalemate in the US and focussing on the improvements being
made by the global economy. Improving German Confidence,
upwardly revised US GDP, stronger US housing and
manufacturing numbers and improving UK business investment
numbers released this week point to an improving landscape.
The icing on the cake to ensure investor confidence is high
going in 2013 will be an agreement in the US budget
discussions.
Closing Yields (Weekly Move):
3m | 5y | 10yr | 30yr | |
US | 0.06% (+0.03%) | 0.76% (+0.07%) | 1.76% (+0.06%) | 2.93% (+0.07%) |
UK | 0.46% (+0.01%) | 0.89% (+0.04%) | 1.89% (+0.03%) | 3.16% (+0.01%) |
Germany | 0.00% (+0.00%) | 0.35% (+0.02%) | 1.38% (+0.03%) | 2.25% (+0.01%) |
Japan | 0.12% (+0.02%) | 0.18% (+0.00%) | 0.77% (+0.03%) | 1.95% (-0.01%) |
Australia | 2.98% (+0.00%) | 2.81% (-0.08%) | 3.33% (-0.05%) |
Metals
Precious
metals continued to see outflows with both Gold and Silver
closing the week lower. It appears that end of year fund
selling has hit a thin market with Silver closing the week
down a whopping 7% and Gold closing the week down 2.3%. This
now sees silver down over 12% in the last 4 weeks of
trading. These markets did finally show some signs of
stability on Friday with both metals closing the last
session up. Friday saw the announcement by the IMF that
Brazil had increased its gold holdings last month by a
record 14.7 metric tons. It has been noticeable this year
that central banks globally have been diversifying their
holdings to include significant gold deposits to counter any
further US dollar devaluation. Many expect this to continue
through 2013. Despite more positive economic data released
this week, copper was unable to hold its gains under the
disappointment of an unresolved US budget discussion. If
there is no resolution to these discussions the US$600bln
hit to the US economy will almost certainly put it back into
recession. Lets see what Obama and co can come up with prior
to the January 1 deadline.
Weekly Moves: Gold -2.3%,
Silver -7.0%, Copper -3.0%
ENDS