High beta currencies and risk-correlated assets are moving higher to start the week, with the Australian and New Zealand Dollars as the top two performers, while the third commodity currency, the Canadian Dollar, is up modestly as well. With European equity markets having a strong day and bond yields remaining relatively unchanged, the way has been paved for a continuation of the overnight rally in the U.S. session today; Gold and Silver are both higher as well, as a sign of confirmation.
There are two main reasons why sentiment may have improved over the weekend: The Euro-zone meeting on Tuesday will likely yield more aid for Greece; and the U.S. fiscal cliff/slope looks like it will be avoided.
With no new news outside of some chatter that Greece will ultimately get what it needs, we'll concentrate on the U.S. Following a sound defeat at the hands of President Barack Obama and the Democrats, Republicans have been back-peddling the past two weeks on issues across the board, but have become increasingly more pliable on how to raise government revenues. Ultimately, given the election results, it is likely that any resolution agreed to will result in a slight tax hike, entitlement reform and tax reform, giving both parties what they desire, but perhaps tilted in the Democrats favor.
Accordingly, U.S. politicians are taking a reprieve from negotiations this week for the Thanksgiving holiday, which has markets in the U.S. half-open on Wednesday and Friday, and closed on Thursday. Generally speaking, holidays tend to drain liquidity and leave trading conditions susceptible to random volatility or otherwise uninspiring price action.
Taking a look at credit, peripheral bond yields are mixed, perhaps preventing the Euro from having a stronger day. The Italian 2-year note yield has increased to 2.234% (+1.5-bps) while the Spanish 2-year note yield has increased to 3.266 % (+7.3-bps). Likewise, the Italian 10-year note yield has increased to 4.868% +1.5-bps) while the Spanish 10-year note yield has increased to 5.848% (+0.6-bps); higher yields imply lower prices.