Market Update - 2 Jan 2013

Wishing you and your family a very Happy New year, may 2013 bring you and your family great health and lots of wealth!!

• Congress seems set to dodge the fiscal cliff, but the respite may be short-lived: spending cuts have been delayed by only 2 months, while the soon-to-be-hit debt ceiling will likely trigger more political tension. In short, the overnight deal from Washington leaves significant fiscal uncertainty hanging over the US economy and markets.

• The Senate last night agreed on a deal to dodge the cliff. The House of Representatives will also need to agree to the deal. According to Bloomberg, it is not clear that the House will agree to the Senate's mix of measures. All these measures are being debated by the lame duck Congress. The new Congress (reflecting the results of the November elections) will be sworn in on 3 January, which may complicate negotiations unless a deal is done beforehand.

• The agreement passed by the Senate involves to two elements of fiscal tightening. First, the payroll tax cut will end; second, the Bush tax cuts will not be extended for incomes over $400,000 ($450,000 for married couples). The automatic across-the-board sequesters (spending cuts) have been delayed by 2 months.

• Singapore likely to have no technical recession, only because Q3 was revised down further to 0% yoy (-6.3% qoq saar).

• In the UK the talk of a triple dip recession is also likely to be avoided as consumer spending accelerates during this festive period.

• China NDS Manufacturing PMI for December at 50.6 (vs. est: 51.0; previous: 50.6). This is a 3rd month of expansion, adding evidence that the recovery in the world’s second-biggest economy will extend into the new year.

• USDMYR opened lower a touch at 3.0500, I reckon from a couple of key drivers, over the New Year there seems to be progress on the fiscal cliff but the Republicans have not agreed to the terms yet, and the other factor is likely the positive datas that came out, China manufacturing accelerating, UK consumer spending improved, Singapore avoiding technical recession and I guess in general market needs something to trade on hence the slightly lower USDMYR. 3.0500 seem to be a support level we I reckon for now the 3.0300-3.0800 will hold till we get further clarity.

• The fiscal cliff would hog the headlines to start 2013 and we will take the lead from the discussion to kick start the year and the direction on the markets.