Bridging political gap sends markets north

15.20 AEDT, Wednesday 19 December 2012

Bridging political gap sends markets north
By Tim Waterer (Senior Trader, CMC Markets)

Signs of the political gap bridging between Republicans and Democrats is all the market needed to remain in festive mode on the approach to year end, with Obama and Boehner seemingly moving closer towards middle ground on the key parameters.

In the immediate aftermath of the November US election, the gap between the two parties appeared immense as the mid November market slump attests. However, the divide between the two parties which started life as an abyss now appears to be just a hop, skip and jump away from a resolution being reached if recent market trajectory is anything to go by. Though the proof will be in the pudding and until a deal is struck, the risk of unwinding the December gains early in the New Year remains a threat.

Despite it being a very productive last few days for ‘risk’ assets, the AUD appears to have missed the boat with the currency somewhat surprisingly losing ground despite advances by global equities and the Euro against a broadly weaker Greenback. A falling gold price as safe haven trades are unwound, as well as a more restrained growth target by China has capped some buying enthusiasm for the AUD. However part of the reason the AUD has underperformed other currencies (like the Euro which has hit 1.3250) is that the Aussie was already ‘ahead of the curve’ in the sense that it had less room to move on the upside compared to other currencies. So, while the AUD may have broken from character by falling despite runs higher in US equities, I would expect the AUD to still be making a push for 1.06 if general market appetite for risk remains strong.

The climb north continued for Australian equities with the ASX200 again pushing through the 4600 level thanks to a rosier looking global picture. Gold stocks lagged after the sell-off in the precious metal price overnight however generally it was yet another positive showing in what has been a prosperous December. The Australian sharemarket has had momentum on its side this month with the local index heading to the year-end finish line with a decidedly wet sail thanks to an improving European and US outlook.

ENDS

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