It was a cautious night with the euro and European bourses coming under renewed pressure in as concerns about Greece and its bailout combined with a rise in Spanish unemployment so that 4.8 million Spaniards are out of work. Equally a bit of US election uncertainty weighed.
In the US there seems to be two key concerns about the election. The first question is just how tight is the race – some put it at 50:50 but Nate Silver’s more granular approach says Obama will win easily. The second concern is about the impact on monetary and fiscal policy that would result in either side winning. Romney is seen as more austere, Obama less so but Obama is viewed as less friendly for the capital gains tax regime. These concerns then of course combine with the fiscal cliff and we just have increased uncertainty.
Datawise overnight in the US the release of the ISM services index showed a slight easing in strength for the services sector as the index dropped back to 54.2 from 55.1 in September. Orders fell to 54.8 from 57.7 although the employment index rose.
At the close, European markets were lower as a result of the above. The FTSE fell 0.5%, the DAX dropped 0.51% and the CAC continues to be the manic depressive of the big markets falling 1.26%. Madrid was 1.87% lower.
In the US half an hour before the close stocks are getting back into the black with the S&P 500 up 0.14% to 1416, the Dow is up 0.08% and the NASDAQ is up 0.46% as Apple has had a good day after news it sold 3 million of its mini iPads.
The concerns in Europe and caution in markets helped the USD maintain its bid overnight with the euro breaking down through the bottom of the range at 1.2800 to make a low of 1.2765 before rallying. Elsewhere GBP was under pressure from the weaker than expected UK services PMI but the Yen is doing a little better than the other majors, largely unchanged on the day.
Today the RBA meets in Australia and I favour a cut of 25 basis points. Australia and the Australian economy needs a cut – but it will probably only help at the margin given household de-leveraging and unless it is a shock 50 basis points it won’t impact the Australian dollar in any material way.
The caution evident in stock and currency markets gave gold a little bid and lifted it from the 9 week lows from Friday’s close to $1682 oz. Interesting price action in crude too with it dipping below Friday’s close in Asian trade before recovering helping the negative trend to lose a little momentum.
The Ags were mixed with corn down 0.74%, wheat rose 0.09% but soybeans fell 1.23%. Copper was 0.30% lower.
Lets have a look at some Met4 charts from my AVATrade platform.
EUR/USD: Euro breaking down through the bottom of the range at 1.2800 to make a low of 1.2765 before rallying a little to sit at 1.2786 as I write. As you can see in the chart below after a double top recently EUR has now broken below the range low of 1.2800, fallen and is closing below the 200 day moving average for the first time in 2 months. At the same time my medium term trend indicator when combined with the ADX suggests further downside for the EUR – support is 1.2740 then 1.2600.
AUD/USD: The AUD did really well in Asian trade yesterday and has held those gains overnight sitting at 1.0365 up 0.31% on the day in contrast to the EUR’s fall of 0.19% and the Pound’s 0.32% drop. It is really going nowhere at the moment and I am preferring to play it on the crosses.
Data: The RBA move today is clearly the most important action but we also get data on the House Price Index in Australia. In Japan we have the Leading and Coincident Indices and then tonight in Europe there is a raft of Services PMI’s before UK production data and German factory orders.
Here is how the markets looked this morning at 730 am EDT.
Twitter: Greg McKenna . He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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