SCOREBOARD: Dead cat bounce?

Barack Obama's confidence on a fiscal cliff deal sent offshore markets soaring overnight, but is it all politicking?

Great. Obama says a deal will be reached on the fiscal cliff and bam – risk on! He’s not even in the US. He's travelling around South East Asia and off he goes saying everything will be alright. I mean it will of course, but it’s increasingly looking like markets aren’t going to tank and this may require a significant change of tactics.

Of course this could be the old one-two – false hope followed by the smack down. But how are we to know? This is why I don’t like politics driving markets – it’s just so arbitrary. He said, she said, RORO.

Anyway, markets are still reacting to that meeting on Friday between Obama and congressional leaders. Recall the commentary from those leaders was very positive and I suspect big investors spent much of the weekend wining and dining political staffers on both sides – giving them access to houses in Hamptons, chalets, yachts, not to forget jobs for relatives – all in an effort to find out if the tone, the true tone of the meeting matched the official rhetoric. Price action last night says it does.

So the S&P500 is up about 1.7 per cent as I write (1383) with the Dow 167 points higher (12.752) and the Nasdaq up 1.8 per cent (2903). By sector we’re seeing strong gains across the board, but especially so in the commodity space with energy and basic materials leading the charge. Obviously the underlying commodities posted a decent bounce back in trading overnight – with crude up 1.4 per cent to $86, copper up 2.2 per cent and gold up $17 to $1732 on a combination of fiscal cliff optimism and, in the case of crude, Middle East tensions.

It's fair to say though it wasn’t all cliff related activity that helped the bid. Housing market data continues to improve with the NAHB index up to 46 in November from 41. This is a six-year high and comes just after Ben Bernanke was talking housing prospects down. Less exciting were existing home sales, which were up 2.1 per cent in October, but that follows a 2.9 per cent fall the month prior. Still, 4.8 million home sales is a higher trend over the year.

Not much else. European crisis fears have subsided quite a lot and there isn’t much news flow anymore. It’s still all about Greece and whether they will get the next disbursement of aid. I think we know they will. I haven’t seen any resolution of the main sticking point though. The IMF wants more writedowns on Greek debt from the official sector, including the ECB. The Germans are still saying this can’t be done as it would be illegal. Talks will continue tonight. For last night’s session, stock gains were strong with the Dax up 2.5 per cent, the CaC up 2.9 per cent and the FTSE up 2.3 per cent – traffic was pretty much one-way – due to hope on Greece, fiscal cliff etc.

Otherwise price action wasn’t so exciting. In the forex space, the Australian dollar shot back up over 1.0406 which is about 30 pips higher than yesterday, while euro was up 40 pips to 1.2807. The British pound and yen otherwise didn't do much at 1.5906 and 81.2 respectively. Then on the rates side there wasn’t much action, and the 10-year Treasury note was up a basis point or so to 1.61 per cent, the 5-year was at 0.63 per cent while the 2-year sits at 0.24 per cent. Australian futures for their part were off 3 or 4 ticks to 97.42 and 96.96 respectively.

Bits and pieces otherwise. In Europe we saw a big drop in Italian industrial sales and orders – both down about 4 per cent in September after modest gains the month prior. Eurozone construction then fell 1.4 per cent in September after a 0.6 per cent gain the month prior.

Looking at the day ahead, the SPI suggests modest gains for the All Ords today – in the vicinity of 0.5 per cent (4400). It’s very light data wise. We get the Reserve Bank's minutes at 1130 AEDT and that’s largely it for the region (apart from Chinese foreign direct investment data). Tonight we only get German producer prices and US housing starts. Bernanke also speaks and will probably spend some time justifying why he needs to print more money – again.

Have a great day…

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