Market Update - 3 Jan 2013

• The ISM manufacturing index improved to 50.7 in December, retracing half of the surprising decline to 49.5 in November, and leaving the index at a level consistent with modest expansion. The improvement was driven mainly by the employment index, which rose to 52.7 from 48.4. The employment index saw more of an impact from Hurricane Sandy than the employment estimates in non-farm payrolls, so the signal for Friday's employment report is weak. Meanwhile, new orders held steady at 50.3, production edged down to 52.6 from 53.7.

• I guess with the new year market is very keen to put on some trades and with the fiscal cliff coming to a first agreement, somewhat…… we saw markets rallied hard overnight, equities rallied while money was fleeing out of the bond markets.

• US stocks surged on cliff deal. The Dow Jones Industrial Average rallied 308.41 points, or 2.4%. The S&P 500 index rose 36.23 points, or 2.5%, to 1,462.42. The Nasdaq Composite gained 92.75 points, or 3.1%, to 3,112.26.

• European stocks also started the year on a cheery note. The Stoxx Europe 600 index climbed 2% to end at 285.33, the highest closing level since February 2011. The FTSE 100 index surged 2.2% to 6,027.37. The DAX 30 index rose 2.2% to 7,778.78. The CAC 40 index rallied 2.6% to 3,733.93.

• USDMYR after 3 months of relative inactivity surged to life yesterday opening at 3.0550 and plunging down to 3.0350 this morning with support for now at 3.0200. Bias for now I would say is on the downside until otherwise proven that their market’s view is wrong, datas are positive and some kind of agreement is reached partially for the fiscal cliff.

• Market prefers some kind of certainty so a deal is better than no deal, even though the deal only address the tax cut but not addressing the spending cuts….yet, so this isn’t the end as there needs to be a USD12bio savings from the tax cut and another USD12bio cut from defense and non defense savings.

• Some details on the proposed deal from yesterday’s sign off from senate:
• The Bush-era income tax rates will be permanently extended for all income up to $400,000 ($450,000 if married). Bush tax cuts that apply to income above those levels will expire.
• Effectively that means for households above those thresholds, their top rate will rise to 39.6%, up from 35% in 2012.
• Plus, the capital gains and dividend tax rates for these high-income households will increase to 20% from 15%. For everyone else, investment tax rates will remain at 15% or below.

• Treasuries fell, with 10-year yields rising the most in more than two months, as demand for the safest securities was curtailed by speculation a budget approved by U.S. lawmakers will sustain the economic expansion. 

• Yields climbed to the highest since Oct. 25 after Congress passed legislation averting income-tax increases for more than 99 percent of households, breaking an impasse about how to avert the so-called fiscal cliff. Lawmakers must next tackle the U.S. debt ceiling, which reached its $16.4 trillion limit on Dec. 31.
  
• Benchmark 10-year yields rose eight basis points, or 0.08 percentage point, to 1.84 percent at 5 p.m. New York time, based on Bloomberg Bond Trader data.

• Germany’s bonds slumped, with 10-year yields rising the most in more than three months, after U.S. lawmakers passed a bill undoing income-tax increases that threatened growth in the world’s largest economy.

• Dutch, Finnish and French securities also fell as progress in avoiding the so-called fiscal cliff undermined demand for refuge assets. Italian bonds rallied, with 10-year yields dropping to the lowest level since December 2010, as the budget agreement spurred investor appetite for higher yields. Germany auctioned 4.15 billion euros ($5.5 billion) of two-year notes, with the sale resulting in a yield above zero for the first time since October.