Yesterday the US Senate voted by a wide margin to pass the tax cut bill which is intended to help stimulate the US economy. However the bill must also pass in the House of Representatives, where it is not expected to have such an easy time. This poses significant risk to the market should the bill not pass, as that would mean that unemployment benefits do not get extended.
Some other news from the US this morning is that initial jobless claims came in slightly lower than expected, with “only” 420K vs. an expectation of 425K. Until this number gets back to the 300s, it will remain largely insignificant. US housing starts also came in slightly better than expected however building permits declined.
In the Euro zone, CPI data came in as expected showing tame inflation, and the Spanish bond auction earlier today required higher interest rates as the threat of a potential downgrade has increased risk. EU leaders are meeting to decide how to further deal with the debt crisis, led by Germany’s hard-line approach which could also put downward pressure on the Euro.
In the UK, retail sales figures came in better than expected which has halted a two-day Pound decline. So we have some mild risk-taking to start the morning, led by Pound and Euro strength.
In the forex market:
Aussie (AUD): The Aussie is mixed this morning as this morning as the market decides which way it wants to go. Giving back earlier gains, risk appetite appears to be picking up going into the start of the US session. Consumer inflation expectations data came in lower than last month.
Kiwi (NZD): The Kiwi is lower across the board as last night business confidence figures came in less than expected and a reading of the NBNZ activity outlook was also lower than the previous month.
Loonie (CAD): The Loonie is also higher pre-open as oil just flipped to a positive gain to start the morning. Securities transactions data came in slightly lower than expected, which means that tangible goods (not services) exports were slightly lower than expected.
Euro (EUR): The Euro is higher against all but the Pound as CPI data came in as expected showing 1.1% core inflation. The debt summit taking place today has boosted investor confidence, and the Spanish bond auction went off without a hitch, despite the fact the market demanded higher yields.
Pound (GBP): The Pound is higher across the board as better than expected retail sales figures show UK economic strength. Retail sales came in at 1.8% ex fuel vs. an expectation of 1.4%. UK economic data has been strong as of late and the BOE is hoping that austerity measures will reduce demand going forward to tame inflation without them having to move on interest rates. This may not be possible.
Dollar (USD): The Dollar is weaker across the board as housing starts figures and initial jobless claims came in better than expected encouraging some mild risk taking this morning. The Philly Fed is due out later this morning. The House decision on the tax extension is looming over the markets, and could provide a risk event later in the day.
Yen (JPY): The Yen is gaining some strength as the Dollar gets weaker but with no further news on tap for Japan, expect Yen to trade on risk themes.
Economic data today was relatively benign so I am a little surprised to see mild risk appetite to start the morning as I do believe there is considerable political risk that could affect the markets.
The European debt summit is bound to produce some sort of fireworks, as German Chancellor Merkel has been a powder keg of late. Germany’s insistence that bond-holders need to share in the risk has spooked markets and has caused rates to rise for those who have debt problems, almost becoming a self-fulfilling prophesy that there will indeed be problems.
Meanwhile here in the US, the House of Reps may have problems passing the tax cut extension bill which could be a disaster on so many levels. While I think that the bill will pass, it is possible that any gridlock could start a chain reaction which could have extremely negative consequences for the economy. However, this is bound to be just political wrangling, so that politicians can show their constituents that they stand up for “the little guy”.
So markets today appear to be in “wait and see” mode, with no real direction to speak of.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!
Tags: account, AUD, Aussie, cad, course, currenc, currency, currency trading, dollar, dow, economy, EUR, Euro, forex, free, fx, fxedu, gbp, Il, interest, jpy, market, news, nzd, practice, ssi, time, trade, USD, Yen