16.11.12 Friday Morning

The US ‘Fiscal Cliff’ has again been the main focal point this week with markets having fallen some distance since the US elections 10 days ago.

Stocks have found it difficult to move higher despite traders’ optimism that Democrats and Republicans may be ready to show more willingness to compromise this time around considering the severity of the situation. With little data of note today (Friday), the main focus instead has been on budget and deficit negotiations across the pond. The danger with these negotiations is that although a compromise of some sorts is likely, as neither party wants to be held responsible for pushing the US potentially back into recession, it could very well be that any kind of deal won’t be struck until the very last minute.

Away from the ‘Fiscal Cliff’ the week started out with all eyes on the eurozone finance minister meeting in Brussels. The main agenda was Greece with ministers trying to find a way to plug another hole in the indebted nation’s finances.

By Tuesday, European financial markets were fighting off session lows assisted by reports that Germany wanted to bundle three tranches of aid to Greece into one single payment of €44bn. A stand-off within Troika over debt sustainability was materialising with the IMF wanting Greece’s debt/GDP downsized to 120% by 2020 while the EU wanted a 120% reduction by 2022. As long as EU ministers and the IMF continue to squabble over their differences on Greece’s aid package, markets will remain uncomfortable with unresolved issues bubbling away in the backdrop.

At the half way point of the trading week Greece’s future was still hanging in the balance, whilst further troubles flared up in Europe after EU chief Olli Rehn ruled out a Spanish bailout. In afternoon trading in Europe, worries over the ‘Fiscal Cliff’ and a batch of poor US data with retail sales and PPI falling sharply added to the general downbeat tone.

Admittedly, it can be said that much of the data out of the US over the next few weeks will be distorted by super-storm Sandy ripping through the East coast of the US.

It was confirmed on Thursday that the eurozone had slipped back into recession with Q3 GDP showing a 0.1% contraction, however, this result wasn’t received too badly as the figure had been expected to be worse. More prominent is the fact that its engines of growth, Germany and to some extent the Netherlands, all printed dismal readings, fuelling concerns that the core eurozone is bruised from the debt crisis which engulfed Greece, Portugal and Ireland.

Next week the ‘Fiscal Cliff’ is again likely to dominate the agenda although Thanksgiving on Thursday and ‘Black Friday’, traditionally the busiest shopping day of the year in the States, will remove some of the intensity.

The eurozone will also remain in the spotlight with discussions set to continue over Greece and with EU leaders meeting on Thursday to discuss the state’s long-term spending plans.

In the UK, Wednesday sees public finance figures due as well as the Bank of England minutes from the last Monetary Policy Committee meeting.

Next week the ‘Fiscal Cliff’ is again likely to dominate the agenda although Thanksgiving on Thursday and ‘Black Friday’, traditionally the busiest shopping day of the year in the States, will remove some of the intensity.

 

The eurozone will also remain in the spotlight with discussions set to continue over Greece and with EU leaders meeting on Thursday to discuss the state’s long-term spending plans.

 

In the UK, Wednesday sees public finance figures due as well as the Bank of England minutes from the last Monetary Policy Committee meeting.