Scoreboard: Budget bummer

Global markets slipped overnight as the US budget deal increased taper expectations.

Global stock markets seem not to have liked the US budget deal at all – all the major global indices are weaker and at the time of writing the S&P500 was off 0.6 per cent, the Dow had fallen 66 points and the Nasdaq was 0.9 per cent lower.

The actual deal was announced yesterday between Democrats and Republican leaders. They had, it was said during our session, reached a two-year budget deal that would actually lift spending in the short term (by $63 billion), whilst cutting it $85 billion per year over the next decade.  The problem, of course, is that this makes it more likely the Federal Reserve will taper – strong economy, useless politicians getting their act together – what’s not to love?

Once again though taper concerns are being played out in the equity space as the 10-year bond yield did little – up 2 bps to 2.84 per cent – while gold was off just under $5 to $1,256. In fact, price action outside of the equity space was generally sedate, although WTI crude fell 1 per cent to $97.5 overnight on news that US gasoline inventories rose more than three times the expectation, although actual inventories of crude fell. Also weighing were comments from Iran that if sanctions are lifted, the additional supply from them would not flood the crude market. It wasn’t all bearish news though, the IEA actually upgraded its oil demand forecasts and Brent actually managed a modest gain of 0.2 per cent ($109.7).

The Australian dollar otherwise dropped about 70 pips overnight no doubt as global investors woke up to find that Aussie consumers are less confident. That result is a problem I’ve noted for readers before. Policy-makers need to take confidence much more seriously – I know the Reserve Bank governor does because he has talked about it at length and noted, as I have, just how important it is for the Australian economy at this point. Although I’m not sure that he can see the damage the focus on the Australian dollar is doing. Policy-makers elsewhere need to listen and stop taking actions that directly harm it. And that includes indulging welfare-seeking industry and giving credence to claims that the withdrawal of one or two companies that rely on welfare to survive, will lead to hundreds of thousands of job losses. That’s pure fiction – but the news flow weighs on confidence.

Anyway, outside of that the euro was about 30 pips higher to 1.3791, while the yen is at 102.5. Nothing much. So in terms of the news and dataflow, the budget deal was the main game in town. Not much else out. German inflation for instance, well the final estimate of it, wast unchanged at 1.3 per cent annually in November, Chinese money supply was also unchanged, growing at a 14 per cent annual clip.  

For our market today, the SPI points to another 0.3 per cent fall which would be the ninth fall in 12 sessions, or something like it. Where’s this Santa rally? Other than that the key data today is the employment numbers. The consensus is that 10,000 jobs were created in the month, while the unemployment rate is forecast to rise to 5.8 per cent.  Tonight we see the European Central Bank’s monthly report, Eurozone industrial production, US retail sales and jobless claims.

That’s the lot, have a great day… 

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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