Morning Meeting: Worries

A sharp drop in US stock markets on Wednesday weighted on Asian markets this morning as investors worried about the “fiscal cliff” of potential tax hikes and spending cuts in January, as well as renewed tension in the Middle East.

US markets fell more than a percentage point yesterday after President Barack Obama reiterated his call for the wealthy to pay higher taxes, setting the stage for a tough budget battle with Congressional Republicans. Markets participants fear that the package of tax increases and spending cuts mandated to come into force next year if a deal is not agreed will send the world's biggest economy back into recession. Worries that drove the Fed to stand ready to take further steps to stimulate the economy according to yesterday's minutes.

Minutes of the Fed's Oct. 23-24 policy meeting, released Wednesday, suggest that it might unveil a bond-buying program in December to replace a program that expires at year's end. The bond purchases would be intended to lower long-term borrowing rates to encourage spending and strengthen the economy.

South Korea's Kospi fell 1.18% to 1,871.79,  Australia's S&P/ASX200 index retreated 0.89% to 4,349.50, Hong Kong's Hang Seng Index dropped 0.80% to 21,269.66, while the Shanghai Composite Index lost 0.33% to 2,048.47 as Xi Jinping was named today to replace Hu Jintao as head of the Chinese Communist Party, ushering in the fifth generation of leaders set to run the world's second-biggest economy over the next decade. He was also named chairman of the party's Central Military Commission.

Japanese equities bucked the trend as the ruling Democratic Party of Japan decided the national vote for the lower house will be held Dec. 16. The deal to bring forward elections due in August came after LDP leader Shinzo Abe agreed to end an impasse over financing the budget and to support a plan to reduce the number of Diet seats. A government led by the Liberal Democratic Party is expected to win according to polls, and consequently adding pressure on the Bank of Japan to ease policy.

An early election together with hopes in a loosing economic policy ahead weighted on the yen which fell the most against the dollar in two months on Wednesday. The doller rose firmly to 80.87Y or 0.75% , likewise the common currency rose to trade to 102.99 or 0.77%.  The Japanese currency move gave a boost to exporters such as Toyota Motor Corp, Honda Motor Co and Canon Inc.

Versus the common currency the greenback traded along the flat line to 1.2737$, commodity wise copper was weaker, off a little more than 0.1% around $7,630 a ton, while gold crept lower to $1,724.70 an ounce in electronic trade giving back gains made in the US session. Elsewhere in the metals complex, silver for December delivery traded down 0.82% at $32.61 an ounce, December palladium fell $7.45 to $634.10 an ounce, while January platinum declined $6.90 to $1,584.70 an ounce. US crude was flat at around $86.30 a barrel although tensions in Middle East are oil supportive.

Today's European morning session will be focused on GDP numbers to be released by the member states with Germany and France under the spotlight together with Spain and Italy.  The overall temperature of  the European crisis will be measured when the ECB released its monthly report which contains the statistical data that policymakers evaluate when setting interest rates. US Jobless, the NY Empire State manufacturing together with the Philly Fed will set the pace for the US market.

A thick macro calendar ahead of us, therefore let's work on our daily game plan.

Have a great one.

Originally posted at www.77sigmatrading.com