Markets re-evaluate after Republicans leave the bargaining table………
Traders have spent much of the day taking profits ahead of the weekend as the last full trading week of 2012 draws to a close. With uncertainty about the outcome of the fiscal cliff talks higher than ever after the fiasco of last night’s cancellation of the Republican vote, investors have adopted a safety first approach, with last night a stark reminder that the current political uncertainty from the US can still lead to erratic moves in a thin market.
Many investors will have awoken to a nasty shock as a sell-off in the S&P in the early hours was exacerbated by a stops in the market, and will have been left with a bitter taste in the mouth after the move was partially reversed shortly afterward.
Miners and financials have been hit the hardest by the overnight change in mood, with RBS (-1.8%) Barclays (-2.1%) and HSBC (-0.8%) all suffering setbacks today with this morning’s banking report providing an uncertain backdrop despite some recent solid gains in what has so far been a defiant push through a headwind of bad press in the last quarter. In a session dominated by flows to safer assets, Xstrata (-0.5%) was the best of the big hitters, but still found itself in the red despite reporting plans to increase ore production by a third at its Lady Lorretta unit in Queensland, Australia.
The U-turn from water regulator Ofwat over changes to water licenses saw Severn Trent (+0.63%) and United Utilities (+0.55%) get a welcome lift, while Pennon Group (-0.5%) gave away early gains through morning trading. Carnival (+2%) rebounded after heavy selling yesterday, with traders citing an overreaction to its end of year figures.
ArcelorMittal (-3%) dropped after reporting a $4.3 billion writedown, while Aeroports de Paris (-5.5%) also slipped back after earnings projections were cut.
Fiscal cliff talks continue to dominate headlines, with talks taking a real turn for the worse after House Republican leaders cancelled the vote on higher taxes for richer Americans, signalling that they not only reject proposals from Obama, but can’t even decide what their own party’s expectations are.
Markets recovered slightly as durable goods orders increased 0.7% in November, while the October number was also revised higher, but in reality did little to repair the damage already done in Washington.
Research in Motion (-16.6%) was again in the news for the wrong reasons, after reporting it will overhaul service fees charged to customers, with Bank of America (2.4%) and Citigroup (2.5%) continuing the negative trend from the banking sector in Europe.
Other notables include drugstore chain Walgreen (-2.8%) who reported Q1 fiscal profits of $0.58 falling short of analysts estimates of $0.70, and sportswear brand Nike (+4.77%) who managed to buck the negative trend, up on better than expected profits, shrugging off a drop new orders from China.
Again the Yen continues to provide the greatest interest to traders, with $/Y (-0.3%) ranging 60 pips across the morning session before settling at the 84.00 just after midday.
EUR/USD (-0.42%) has struggled to stray too far from the key 1.3200 level for most of the session following an overnight sell off as investors flock to the relative safety of dollar.
The pound has also slipped back a little after this morning’s poor public sector borrowing numbers
Gold (+0.45%) has fared the best of the precious metals after reports that Brazil has increased its holdings for a third straight month. They join a number of other central banks who have made the same move as a response to current uncertainty. Palladium (-0.15%) and Platinum (-0.5%) were lower.
US Crude (-1.1%) declined the most in two weeks in a reaction to the US political stand-off, after worries that the spending cuts and tax hikes that would ultimately be triggered if no agreement is struck will severely impair US demand.
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