Markets await Fed as Fiscal cliff concerns limit the upside
00:00, December 12 2012
· By Sales Trading
Europe's markets have been broadly positive today with the German DAX trading solidly above the 7,600 level for the first time since January 2008. Most investor eyes remain focussed on the Fed meeting later today where there is increased speculation that US policymakers will roll over the $45bn of the expiring "twist" money into a new form of asset purchases at the beginning of next year.
There's been little in the way of other news flow with as EU ministers gather in Brussels to thrash out details of a bank supervisory mechanism that satisfy the divergent views and conditions of France, Germany, Sweden and the UK, with German finance minister Schaeuble stating he was confident of an agreement, though this seems highly optimistic given the divisions and it still seems more likely that the EU will miss its self-imposed year-end deadline for an agreement.
Some earnings data has proved a lift with Spanish success story and clothes retailer Inditex, owner of the Zara clothes chain, reporting yet another rise in profits, shrugging off the woes in its home country to report an increase in revenues as well as reporting plans to open a website in Canada.
Pursuing the retail theme today another clothes retailer, Superdry owner Supergroup continues to make progress after a string of profit warnings, shrugging off its recent accident prone reputation, by reporting higher sales and reporting six month profits of £14.7m.
This outperformance has given the retail sector a lift this morning with Primark owner Associated British Foods enjoying some early gains.
Amongst the other risers Anglo American is higher, buoyed by an upgrade at Barclays, who cite a 1970p medium-term price target.
Oil and gas shares have also pushed higher after the IEA revised its demand outlook for 2013 slightly higher by 110k barrels, while Tullow Oil has started to rebound despite being downgraded by Credit Suisse.
Diageo shares continue to feel the fallout from the collapse in the Jose Cuervo bid with a price target reduction by Nomura
UK unemployment showed some improvement in November with monthly claims dropping by 3k, while in the three months to October the count fell by 82k. Average earnings continue to fall relative to inflation over the same period rising 1.8%, less than expected; meaning consumers are likely to feel poorer as prices rise faster than incomes.
US markets opened higher today as investors continue to build expectations of further central bank largesse later today. Markets slipped off their highs after GOP leaders continued to insist that President Obama put spending cuts on the table which suggests that the two sides remain as far apart as ever.
Shares in focus include Du Pont who announced a share buyback and also announced that profits would come in at the upper end of its forecasts for 2012.
General retailer Costco also came out with a positive set of numbers as Q1 earnings jumped 30%, with profits coming in at $0.95C a share, above expectations of $0.93c.
Shares in tech shares are also higher led by Advanced Micro Devices and Intel.
The US dollar continues to be buffeted by the Fed effect slipping back across the board ahead of tonight's Fed meeting, though the Japanese yen was also underperforming, as investors become more sanguine about an increase in tail risk, while the prospects of further Japanese easing as well as concern about the Japanese economy now begins to be reflected in the Japanese currency.
This morning's Italian T-bill auction saw yields fall on 12 month bills slide back as the Italian Treasury sold €6.5bn at 1.456%, the lowest level for 9 months. 10 year yields have also retreated but still remain higher on the week. The single currency as a result of these softer yields has pushed above the 1.3000 level.
The pound has had a rather mixed day, higher against the US dollar but lower against the euro after UK unemployment data showed an 82k fall in the three months to September. In other positive news the number in work rose to the highest levels since 1971, further contrasting the employment situation in the UK relative to Europe.
Despite the announcement of negative interest rates by Switzerland's two biggest banks the Swiss franc is also big gainer today as traders pare bets that the SNB will announce it is following suit at its policy meeting tomorrow after two days of losses.
After finding itself under some selling pressure Gold appears to be once again pushing higher after finding support just above the $1,700 level as the US dollar weakens ahead of today's Fed meeting.
The weak US dollar has also seen oil prices push higher after several days of declines, though the revision higher by the IEA of its world demand forecast for 2013 has no doubt helped prices recover somewhat after hitting one month lows on the WTI measure earlier today.
On the Brent measure, prices hit a one week high on the same US dollar weakness, while optimism about Chinese demand continues to keep a floor under prices, especially given that OPEC have decided to keep output levels unchanged.
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