Quote of the Day.
A bad beginning makes a bad ending.
Euripides
The U.S. fiscal cliff negotiations or should I say the lack of a deal just yet resulted in an early day rally on Tuesday stalling by the afternoon and sending equities and oil into negative territory for the day. Comments from both sides in the media created more uncertainty for market participants sending the weak longs to the sidelines. The markets are playing out as I have been suggesting for weeks... higher than normal volatility and sudden price reversals for nothing other than comments over the media airwaves. This pattern will continue until there is a clear signal that a deal has been reached. At the moment most traders and investors have a very short term horizon and seem very unwilling to sit with any major position for any length of time.
Overnight we have seen a modest rebound in equities and oil prices on comments from the newly installed Chinese government indicating that they will keep their macroeconomic policies stable making adjustments as needed. Market participants in Asia took that as a positive sign resulting in a rally in most Asian equity markets that has carried over into European trading. Just about every area of the global economy is fragile at best with some areas showing signs of stability. The macroeconomic data over the next month or so will be very telling as to whether what looks like stability in some areas is truly the beginning of a turning point or simply a continuation of the slow growth pattern that has been in play for well over a year.
For example in the U.S. the ever important nonfarm payroll data will be released on Friday. The market is currently expecting 90,000 new jobs created with the headline unemployment number coming in at 8%. If the actual number is in sync with the expectations it will certainly not be a very robust outlook and one that suggests the U.S. economy is still not creating nearly enough jobs to simply keep up with the new entrants into the economy let alone impacting the large numbers of people already out of work.