US fiscal cliff deal prompts broad market rally
Global stock markets surged about 2.0 percent and commodity prices rallied on Wednesday after the US legislators approved a deal halting a round of automatic fiscal tightening that threatened to push the world's largest economy into recession.
January 03, 2013 / 09:17 IST
Global stock markets surged about 2.0 percent and commodity prices rallied on Wednesday after the US legislators approved a deal halting a round of automatic fiscal tightening that threatened to push the world's largest economy into recession.
The deal to avert the "fiscal cliff" reached on Tuesday kept at bay the immediate pain of tax hikes for almost all US households, but did nothing to resolve other political showdowns on the budget that loom in coming months.Spending cuts of USD 109 billion in military and domestic programs were only delayed for two months.Also Read: Rally to die soon, US debts will spook mkts: Credit SuisseThe deal boosted investors' appetite for riskier assets and depressed the US dollar against major currencies. Brent crude oil hit an 11-week high of almost USD 113 per barrel and gold prices rose more than 1.0 percent.The vote in Congress removed a major uncertainty hanging over markets, but some analysts cautioned the optimism could fade if US economic data later this week disappoints."Many investors are feeling confident heading into 2013 following a year of strong equity market returns, and the recently signed deal," said Jonathan Golub, strategist at UBS in New York."Unfortunately, our sense is that the most important structural issues will continue to be pushed off into the future, leaving significant uncertainty about the long-term direction of the economy and corporate profits."Wall Street stocks surged on the opening, following strong equity gains in Europe and Asia.The Dow Jones industrial average was up 257.83 points, or 1.97 percent, at 13,361.97. The Standard & Poor's 500 Index was up 28.79 points, or 2.02 percent, at 1,454.98. The Nasdaq Composite Index was up 74.71 points, or 2.47 percent, at 3,094.22.The MSCI all-country world equity index rose 1.98 percent to levels last seen in early July 2011. The pan-European FTSEurofirst 300 rose 1.88 percent to 1,155.33.In currency markets, the euro hit USD 1.3299, the highest in two weeks and not far from an 8-1/2-month high set on December 19. It was last at USD 1.3248, up 0.3 percent.The US dollar fell 0.3 percent against a basket of major currencies. The dollar traditionally rises when markets sense risk and falls when tensions subside.It was a similar story for government debt, where prices of higher-yielding Spanish and Italian bonds rose and the German equivalent, usually favored by risk-averse investors, fell. The Bund future was on track for its biggest daily fall since September as it dropped 1.52 points to 144.12.The benchmark 10-year US Treasury note was down 26/32 in price to yield 1.8459 percent.Brent rose USD 1.58 to USD 112.69. US crude rose USD 1.72 to USD 93.54 a barrel. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
