Global stocks surged and commodities rallied yesterday after US legislators struck a deal to halt a round of automatic fiscal tightening that threatened to push the world’s largest economy into recession.
The deal reached on Tuesday to avert the “fiscal cliff” put off the immediate pain of income tax hikes for almost all US households but did nothing to resolve other political impasses on the budget that loom in coming months, including the debt ceiling.
Spending cuts of $109bn in military and domestic programmes were only delayed for two months, and a fight over the limit for US government debt also looms.
“There was the fiscal cliff euphoria, but the markets are a little overdone and people realise you still have the debt ceiling battle, social security taxes going up and dealing with spending sequestration and budget cuts,” said Mark Waggoner, president at Excel Futures Inc.
The deal boosted investors’ appetite for riskier assets and depressed the US dollar against major currencies. Brent crude oil hit an 11-week high of nearly $113 per barrel and gold prices rose more than 1% to a two-week high.
In oil trading, London’s benchmark Brent crude ended up 1.2% at $112.47 a barrel, after surging earlier to a 11-week high of nearly $112.90.
Brent finished up 3.5% in 2011. It averaged more than $111.65 per barrel through the year, the highest annual average on record, as geopolitical threats to production offset worries about flagging oil demand.
US crude settled up 1.4% for the session at $93.12 a barrel. It hit an intraday high of $93.87 a barrel, the highest since Sept. 21. For 2011, US crude gained 7%.
The US fiscal deal aside, oil found support from robust data out of China pointing to a recovery in the world’s second-largest economy and No. 2 oil consumer.
The vote in Congress removed a major uncertainty hanging over markets, but some analysts cautioned that the optimism could fade if US economic data later this week, including the December payroll report, disappoints.
US manufacturing expanded slightly in December, bouncing back from an unexpected contraction the prior month, according to an industry report released yesterday.
The Dow Jones industrial average was up 237.95 points, or 1.82%, at 13,342.09. The Standard & Poor’s 500 Index was up 27.91 points, or 1.96%, at 1,454.10. The Nasdaq Composite Index was up 79.04 points, or 2.62%, at 3,098.55.
The MSCI all-country world equity index rose 1.74%. The pan-European FTSEurofirst 300 closed 2.1% higher at 1157.40.
In currency markets, the euro was at $1.3173 after reaching a two-week high earlier in the session. The US dollar rose 0.1% against a basket of major currencies.
Spot gold was up 0.8% at $1,687.60 an ounce by 2:54pm EST (1954 GMT), off a two-week high of $1,694.70 reached earlier in the session.
Gold ended up around 7% in 2012 for its 12th straight year of gains, although it recorded a soft final quarter when it fell 5.4%, its worst quarterly performance since the third quarter of 2008.
Silver rose 2.4% to $31.01 an ounce.
Platinum group metals rose, but were well off their session highs. Platinum was up 1.8% to $1,562.74, while palladium rose 1.9% to $704.96 an ounce, well off $715.72, the highest price since March 2, 2012. Page 32
IMF: US ‘cliff’ actions not enough
The International Monetary Fund said yesterday that US actions to avoid the fiscal cliff did not go far enough to address the country’s long-term fiscal deficit and debt problems. The global emergency lender cheered the political deal finalised late Tuesday in Washington that allowed the country to avoid severe spending cuts and tax hikes programmed to take place. “In the absence of Congressional action the economic recovery would have been derailed,” IMF spokesman Gerry Rice said in a statement. But, he added, the Congress made little progress on dealing with the larger-picture problem of the US deficit, and the need to increase the country’s statutory debt ceiling in order to keep funding that deficit. “More remains to be done to put US public finances back on a sustainable path without harming the still fragile recovery,” Rice said in a statement.
Source: Caye Global News, Reuters
The Energy Books by Dr. Theodore, now available on these stores:
THE SECRET WORLD OF ENERGY – Oil, Gas & Petrochemicals…
Oil – Gas Exploration & Drilling…