Rough earnings season knocks risk appetite

11.01 NZST, Wednesday 24 October 2012

Rough earnings season knocks risk appetite
By Andrew May (Sales Trader, CMC Markets New Zealand)

A rough night on the markets through lack lustre quarterly results and renewed fears of a weakening Spanish economy have literally pushed risk from the table. The DOW finished 1.82% or 243pts lower, its worst drop since June, fuelled primarily through below par earnings with 3M, IBM & Dupont among the hardest hit.

It’s obvious that US companies are concerned standard consumer households are still struggling to nurture their income streams and as a result are heavily de-leveraging from extreme debt levels. This has resulted in sales missing forecasts, job cuts and cutting costs, all the while despite a continual and prolonged stimulus package pumped into the economy by the Federal Reserve, not to mention most other central banks across the globe.

It poses the question, just whether the Fed's 'quantitative easing' programmes are in effect 'ineffectual'? Throw the looming Fiscal cliff into the mix and what's shaping up to be a nail biter of an election and you have a catalyst for a cracker of a firework to be lit.

All this deflationary woe and loss of risk appetite exacerbated a $20oz drop in the price of Gold to $1,705oz, a stark contrast from 5 October levels of $1,793oz. The NZDUSD deflated 60pts opening today's trade just over US 81c.

Several economists and the New Zealand Institute of Economic Research's Shadow Reserve Bank Board (NZIER) are lumping pressure on incoming NZ Reserve Bank Governor Graeme Wheeler to quickly act on his first cash rate review tomorrow morning. I believe he will keep the overnight rate at 2.5% for the rest of the year and instead will wait, watch and react accordingly, perhaps firstly to our neighbours across the Tasman. Inflation levels recorded in Australia later today may provide an aggregate of just how we are to perform with our overseas trading partners.

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