President Barack Obama was sworn in on Monday (EST) with the first salvos fired at Republicans during his inaugural address. Below are the few major points he’s raised:
On Social Benefits:
“We must make the hard choices to reduce the cost of health care and the size of our deficit. But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build.”
On Climate Issues:
“We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations…”
“The path toward sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition; we must lead it.”
These strong statements hint at a stronger stance in Obama’s 2nd term, as he aim to tackle the looming debt ceiling and reinvigorate the US economy back to health. He has since mentioned on record that debt ceiling issue is “non-negotiable”, however that would mean something gotta give eventually. From the tone of his speech, it is apparent that health care/cost and Oil related tax breaks are not going to be the 2 areas that he will cave.
How does the market respond? Not very kindly.
US10Y T-Note 30 Mins
Treasury yields decrease as investors do not believe that a strong hard stance will work. Many people credited Obama’s soft and willing stance back in his 1st term as one of the key reasons US managed to pull out of a potential recession. During the early days of the financial crisis, Obama met the honchos of major banks, instead of a hard stance, famously said “how can I help?”, which helped key negotiations to continue smoothly. With a hard stance against the Republicans this time round, Obama is playing a close game of chicken with US default at stake. Though widely criticized, this is appearing to work somewhat with House Republicans seeking to push the dateline from March to May in order to buy some more time. That development doesn’t seem to faze investors being bearish on the market though, with Treasuries gaining demand.
S&P 500 30 Mins
As investors get more risk averse, stock prices fall. However, from a technical point of view, S&P 500 is still firmly on an uptrend both on the short-term and also the longer-term. Short-term price is still above the trendline with Stochastic readings hinting at a new bottom with a cross between Stoch and Smoothing Line. However, if risk aversion continue to enter the market, we could certainly see a breakdown of bullish momentum in the shorter term first. A seismic shift in sentiment is probably required to push prices much lower in the longer-term.
Gold 30 Mins
Gold prices has been relatively stable for the past trading day, moving within a range slightly more than 10 USD. Price heading higher is expected with Gold being a classic safe-haven. However price is still far away from the top end of the resistance band, suggesting that though investors are concern, we’re still far away from the “panic” stage. Stochastic reading is also hinting to peak, with price potentially heading back lower to the bottom of the consolidation range.
Market is certainly slightly bearish following Obama’s speech, however the biggest issues at hand – debt ceiling versus austerity measures – will only be fought in the following weeks in the Congress. Should House Republicans get their way for May 19 Debt Ceiling extension tomorrow, check market prices if investors are happy with a postponement of any proper resolutions. If yes, we could see more of the same as there will be less pressure for the politicians to get down on it quickly, and certainly Obama’s hard stance will be much less effective in the long run.