Markets Continue To Meander Sideways

Markets have sunk back into a period of dullness after the great run-up in expectations, and the subsequent fall-off that the Fed meeting and the surprise decision caused. Equities have remained unwanted at the margin, while the USD has managed to fight back slightly from its ‘No-Taper’ losses. Everywhere else has been deathly quiet and range-bound.

Yesterday’s data did nothing to alter this mind-set. The IFO business climate number from Germany missed expectations of 108.0, coming in at 107.7. And, while this was the 5th month of improvement in confidence, a lack of exceptional growth in Germany may just keep confidence from getting too buoyant. Consumer confidence, however, has this morning been published at a 6 year high with respondents telling pollsters that they’re more willing to spend money now than at any point since the crisis began.

Unfortunately confidence could not be counted on in the United States yesterday, as it missed expectations and declined to the weakest since May. It once again ties back almost exclusively to the jobs market with unreliable jobs growth and limited rises in wages the deciding factors. As we noted before last week’s Fed meeting, while employment has been improving, the rate of that improvement has slowed since May and, with larger fiscal issues out there, that could also hurt sentiment. We expect the US consumer to become more sanguine into Christmas.

The NZD has been the biggest faller overnight following news of how badly a drought in New Zealand has affected local milk production. According to Fonterra, the drought decreased supply by around 9% in the first 6 months of this year. This news comes after the negative press surrounding the possible contamination of milk solids exported to various countries in June of this year.

With limited data out over the coming days, focus will remain on Washington DC and the ongoing skirmishes of the Budget battle between Democrats and Republicans. As we wrote yesterday, this is not a new concern. We’ve had similar battles in recent years, but the state of Republican Leadership in Congress is a lot weaker than in previous episodes. And, we also have the spectre of a debt ceiling negotiation to be dealt with by the mid-part of next month. Haven currencies such as the USD, JPY, and CHF were bought in previous instances and we see no reason why this will not change, the closer we get to Monday night’s deadline.