Stalled negotiations turn markets

After reaching a 18-month high Asian stocks eased and commodities fell in morning trade on stalled budget negotiations in Washington. President Barack Obama accused his opponents of holding a personal grudge against him and threatened to use his veto power. The top Republican negotiator branded the President “irrational”. The mutual accusations came after substantial progress to avert the so called “fiscal cliff” had been obtained during the last days. The personal taunts put a timely solution at risk and threaten the world largest economy with recession.

The harsh rhetoric had an immediate effect on markets. After a flat opening Dow Jones plunged 0,78 while Nasdaq lost 0,33 %. Financials and retailers, the big winners earlier in the week, were hardest hit. General Electric, Alcoa, Home Depot and the Bank of America were among the big losers. The Asian indexes with exception for the South Korean Kospi which rose 0,3 % on news of the election of its first female president, lost ground. Australia is still up. It is expected that European and US markets today will open lower on profit taking and risk aversion. Decreased risk appetite shall probably hit also smaller currencies.

Bank of Japan (BOJ) has according to expectations expanded its asset-buying program by 10 trillion yen to fight deflation. USD/JPY which saw 84,50, has fallen to below 84 as result of the stalled budget negotiations. Euro/USD peaked to 1.33085 on Wednesday has fallen back trading at 1.3210. Smaller currencies are due to the changed risk sentiment atmosphere losing ground.

Oil prices which rose on growth optimism, has retreated somewhat in early Asian trading. Brent crude stands at 110.08 with NYMEX just below USD 89 a barrel. Copper is down. Gold and silver are at the lowest levels seen for months.

US prosecutors have charged two former UBS (Union Bank of Switzerland) traders for participating in a scheme to manipulate Libor and other benchmark interest rates. This is the first individuals criminally accused in the Libor scandal. UBS has agreed to pay a fine of USD 1,5 billion to regulators in the US, UK and Switzerland. The Hong Kong Monetary Authority has simultaneously stated that UBS is under investigation for similar fraud in Hong Kong.

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