Lack of Fiscal Cliff progression douses market enthusiasm

Lack of Fiscal Cliff progression douses market enthusiasm

By Tim Waterer (Senior Trader, CMC Markets)

The market relief over a debt deal for Greece lasted about 5 minutes before investor attention changed course towards the as-yet unresolved Fiscal Cliff. The rhetoric emanating from Washington in recent days has not exactly filled traders with an abundance of confidence that a deal will get done comfortably before the deadline. Investors had feared that the discussions between Republicans and Democrats would be a long, drawn out process and this is exactly what appears to be playing out on Capitol Hill.

With a lack of development over the US budget talks dousing some recent market enthusiasm, the run higher in ‘risk’ assets has for the moment stalled, much like the Fiscal Cliff discussions themselves it would seem. As a result, there is an uptick in US Dollar buying which has translated into weakness among commodities like gold and oil, with traders making a slight lean towards the side of caution.

Shares across Asia followed the tone set by Wall Street with weakness the theme of the day. And while the equity market weakness was not of the ‘game changing’ variety, it was enough to keep the major bourses trading in red numbers given new no developments on the Fiscal Cliff front.

The resource stocks were the most notable under-performers on the Australian market, with commodity prices taking a downturn due to the lack of progression from US budget talks. Overall, much of the buying momentum enjoyed in the last week or so seems to have dissipated with the gap over the Fiscal Cliff discussion still some way from being closed. However at the first sign of forward progression from US politicians I would expect the market to again be pepped up on expectations that a deal will eventually get done, albeit at the eleventh hour. But until then, the global financial market will be hanging on every word from Washington.
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