Australian dollar stable on US Budget talks

No data from the US Friday but progress on the US Budget deal, from the WSJ:

Negotiators in Congress are moving toward a narrow agreement on this year’s federal budget that … modestly reduces the roughly $100 billion in across-the-board spending cuts, known as sequestration, that will hit in January….To replace the sequester cuts, officials close to the talks said, lawmakers are looking at increasing airport-security fees, cutting costs in federal-employee retirement programs and drawing on revenue from the auction of broadband spectrum. Democrats also want to count savings from program changes in a farm bill, which is being negotiated in a separate process, to offset sequester cuts, but Republicans say those savings should go to general deficit reduction.

Not much decrease in fiscal drag but no worse either so probably a mild taper positive.

Calculated Risk is also reporting that house prices are about to turn negative:

I expect the CoreLogic index – the index is Not Seasonally Adjusted (NSA) – to decline month-to-month in the October report. The Case-Shiller index (NSA) will probably turn negative month-to-month in the November report. This will not be a sign of impending doom – or another collapse in house prices – it is just the normal seasonal pattern. Even in normal times house prices tend to be stronger in the spring and early summer, than in the fall and winter. Currently there is a stronger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have a larger negative impact on prices in the fall and winter.

No, not doom. But I’m a little more pessimistic. If the Fed doesn’t taper then housing will flatten out and maybe grow slowly. But if it does then the 30 year bond will spike again, to 4.5%, and house prices will fall a little faster as investors withdraw from the market. At the macro level, quantitative easing turns monetary policy from a dial to an on/off switch as it creates bind bubbles. This is reflected at the micro level by an increasing proportion of QE inspired investors in housing, making it a capital gains driven market. Both increase volatility.

So, not much to report on taper today. As such the Australian dollar was stable at 91 cents, the US dollar and gold firmed slightly, stocks and bonds were flat.