September 17, 2019

Global Markets Rise on Fiscal Deal

PARIS — Global stocks kicked off the 2013 trading year with a strong start Wednesday, as investors welcomed a deal between President Obama and congressional Republicans that ended, at least temporarily, an impasse over fiscal policy that had threatened chaos in the new year.

The drama over the so-called fiscal cliff ended late Tuesday when a sufficient number of Republicans in the House of Representatives joined Democrats to back a deal the Senate had reached earlier, modestly raising income taxes on the highest-earning Americans, ending payroll tax cuts, and creating permanent tax cuts for others.

“There’s clearly a big relief rally,” Christian Schulz, an economist in London with Berenberg Bank, said.

The Euro STOXX 50 index of euro zone blue chips rose 2.7 percent in afternoon trading, while the FTSE-100 index in London gained 2.3 percent. The euro gained 0.6 percent to $1.3270, and yields fell on Spanish and Italian government bonds.

Trading in Standard Poor’s 500 index futures indicated that Wall Street would start the day with a bounce. Asian indexes also gained, with the Hang Seng index in Hong Kong rising 2.9 percent. But markets in Japan and mainland China were closed for holidays.

Still, analysts warned that the gains might not last, as the last-minute deal had only bought time.

The deal “is likely to prove only a temporary fix to address fiscal uncertainty in the U.S.,” Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ in London, wrote in a research note, pointing out that “the planned sequester government spending cuts merely delayed for two months.”

Investors, he added, probably will begin to focus on “whether U.S. politicians will be able to raise the debt ceiling in the next two months to avert a technical default, and whether the delayed sequester spending cuts will now come into force on March 1.”

Mr. Schultz noted that the United States hit the debt ceiling of $16.4 trillion, or 104 percent of 2012 gross domestic product, on Dec. 31, and could it exceed it as soon as February without congressional action.

There are also questions about how America’s new commitment to cutting the deficit will affect the economy and its credit ratings.

“The austerity they’ve imposed is very modest,” Mr. Schultz said, “perhaps 1 percent of G.D.P. So maybe the most interesting thing will be to see how the ratings agencies react.”

Analysts at DBS in Singapore wrote in a research note: “Call it breathing room, call it kicking the can down the road, call it whatever you like — come mid-February, when the decision on the legal U.S. debt limit will be needed, the fight starts afresh.”

They added, “Two more months of shenanigans and waffling/seasick markets? It certainly looks that way.”

The stock-market gains in Europe came despite indications that the region’s manufacturing activity remains in the doldrums. Surveys of purchasing managers by Markit Economics, a data and analysis firm, showed euro zone factories ended 2012 in poor shape, with both production and new orders declining in December. German factories posted declines in both output and new orders, according to the Markit data, while the Spanish manufacturing shrank a 20th consecutive month, with both the decline and the pace of job cuts accelerating.

The news from Europe was not uniformly bad. In Athens, officials hailed data showing Greece posted a primary surplus of €2.3 billion, or about $3 billion, in January-November 2012 compared to a primary deficit of €3.6 billion in the same period of 2011. The primary deficit refers to the government’s budget gap before interest payments on the national debt. The Finance Ministry said the shift showed that Greece’s efforts at “fiscal cleansing, adjustment and discipline are bearing fruit.”

And as a sign that investors are more comfortable with risk, Germany sold about €4.2 billion of two-year notes Wednesday, priced to yield 0.01 percent. That marked the first time that such securities had drawn positive yields since October. Germany’s bonds are regarded as one of the world’s safest investments, and worried investors had been willing to accept negative yields in exchange for the certainty of safeguarding their capital.

Bettina Wassener reported from Hong Kong. Niki Kitsantonis contributed reporting from Athens.

Article source:

Global Stocks Post Steep Declines

Investors continue to fret about the euro zone’s ability to respond to its debt crisis, after talks between Greece and its foreign creditors were put on hold last week and the head of the European Central Bank, Jean-Claude Trichet, warned Italy to stick to its austerity program.

In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 3.8 percent, while the FTSE 100 index in London dropped 2.4 percent.

Bank shares led the declines. Royal Bank of Scotland gave up more than 10 percent, while Deutsche Bank, BNP Paribas and Société Générale all fell more than 7 percent.

In addition to growing expectations that many financial institutions will need to raise capital — as the head of the International Monetary Fund, Christine Lagarde, suggested last month — banks have also been hit by a lawsuit filed by the U.S. authorities against 17 financial institutions that sold the mortgage giants Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured.

In Asia, the Hang Seng index in Hong Kong fell almost 3 percent, while the Shanghai composite index dropped almost 2 percent. The Nikkei 225 stock average fell 1.9 percent in Tokyo, while in Sydney the SP/ASX 200 index fell 2.4 percent.

U.S. equity index futures declined, though Wall Street was closed Monday for the Labor Day holiday in the United States. On Friday, the Dow Jones industrial average slid 2.2 percent after an employment report showed the United States economy added no jobs at all in August, renewing worries that the country might be heading for a recession.

The U.S. jobs data suggest that economic growth “will temporarily stall in late 2011, with at least a 40 percent risk of recession,” Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a research note. He predicted the Federal Reserve would announce new measures to speed recovery when its policy board meets Sept. 20-21.

In Tokyo, exporters like Sony, Panasonic and Sharp, which derive a large part of their earnings from sales in the United States and Europe, fell more than 3 percent.

“Financial markets continue to be stressed about the lack of growth drivers in the global economy,” analysts at DBS said in a research report on Monday.

“Against this background, members at the G-7 meeting on Sept. 9-10 will have a challenging task to restore confidence in the ability of the advanced economies to support growth and jobs, as well as to restore financial stability,” the DBS analysts wrote. “Hence, risk appetite is likely to be low in markets as long as the advanced economies are seen on the defensive on the growth front.”

Gold was trading at $1,890 an ounce, up 0.9 percent, having risen sharply Friday. U.S. crude oil futures for October delivery fell 1.9 percent to $84.79 a barrel.

The dollar was mixed against other major currencies. The euro declined to $1.4118 from $1.4205 late Friday in New York, while the British pound fell to $1.6133 from $1.6218. The dollar also gained against its Japanese counterpart, ticking up to 76.85 yen from 76.81 yen. But the U.S. currency slipped to 0.7857 Swiss franc from 0.7884 franc.

Bettina Wassener reported from Hong Kong.

Article source: