Sentiments Firm after Moody's Upgrade US Rating Outlook

DOW and S&P 500 closed at new record high overnight as boosted by Fed chairman Bernanke's testimony and earnings.

 

But the momentum doesn't follow through in Asia today where major indices are mildly lower. Moody's affirmed US's Aaa credit rating and upgraded the outlook to stable from negative.That is, there will not be a downgrade in the next year or two.

 

The rating agency noted that the country's debt trajectory is on a downward trend between now and 2018 even without further fiscal policy action. According to the Congressional Budget Office, the budget deficit is expected to drop to 4% of GDP this year, down from 7% last year. That is lower then Moody's expectation when it assigned the negative outlook back in August 2011.

 

Yen remains soft ahead of Sunday's upper house election in Japan. The ruling LDP is expected to have a landslide victory, would enable Prime Minister Abe to continue with his three arrows of Abenomics, monetary stimulus, fiscal spending and structural reform.

 

Yen crosses could extend recent rebound in near term. But in general, we're expecting strong resistance from May's highs to limit upside to bring reversal to extend recent consolidation. There shouldn't be enough selling momentum in yen unless Abe announce something more drastic.

 

As for today, Japan will release all industry activity index. German PPI and UK public sector net borrowing will be released in European session. Canada will release consumer inflation data.