Risk Appetite Remains Weak

Risk Appetite Remains Weak


The negative risk sentiment was unremitting in the Asian session as traders continued to flow into safe haven trades. Asia regional indices were broadly lower as the Nikkei fell -1.51%, Hang Seng -2.13% and Shanghai dropped -1.63%. The core drive to this sudden post-election erosion in risk appetite was the realization that a solution to the US “fiscal cliff” (combination of tax hikes and spending cuts) seems unlikely given the hostile election cycle and unchanged political structure. Yet the risk-off environment is not only the fault of the US. Increasing the selling pressure, ECB President Mario Draghi comments that economic activity in the euro zone area is expected to remain worryingly soft and the slowdown had now effected Germany. After yesterday’s aggressive sell-off in the EURUSD which took the pair down to 1.2739, the pair is now range-bound between 1.2745 and 1.2777. Interestingly the fall in the EUR was not accompanied with a rise in peripheral yields as Spanish 10 yr remained stable at 5.66%. Gold has had a choppy few days trading up to $1731 only to drop back to $1703 before stabilizing around $1720. News out of Greece was mixed as the Greek parliament approved austerity package in tight 153-128 vote. However, on news of the budget passage, Athens quickly broke out in violent protests highlighting the growing civil disapproval of deeper austerity measures. On a positive note the Greek parliament approval of the austerity package should enable the Troika to release the next tranche of aid and avert bankruptcy. On the data front in New Zealand NZ Q3 unemployment rose 7.3% vs. 6.7%. Despite Moody’s comment that they were comfortable with New Zealand’s triple-A rating, NZDUSD fell sharply to 0.8158 from 0.8263. The highlight of the day should be the BoE and ECB rate decision, however, neither meeting should announce any adjustment, making them non-events. While monetary policy is still a dominate theme we doubt Draghi will provide any real insight, since the OMT has not been triggered, (but watch for questions reading yesterday's gloomy growth outlook comments), in the accompany press conference.