Global Market Overview

Last updated: November 19, 2012 10:40 pm

US stocks jump on fiscal cliff hopes

Monday 22:20 GMT. Risky assets begun the week with sharp gains amid signs of progress regarding deficit talks in Washington, while oil prices are adding to last week’s gains on worries over the conflict between Israel and Palestinians in Gaza.

Stocks on Wall Street jumped, with the S&P 500 posting its biggest one-day gain in more than two months. The broad measure ended the session 2 per cent higher at 1,385 points.

After markets closed, Moody’s Investors Service downgraded France’s credit ratings by one notch to Aa1 from Aaa, and said the country’s outlook remains negative. Moody’s said France’s long-term economic growth outlook is being negatively affected by “multiple structural challenges”, including a gradual loss of competitiveness.


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Global Market Overview

Earlier in the session, the S&P 500 was also helped by encouraging data on the US housing market. Existing home sales rose 2.1 per cent in October to 4.79m, according to data released by the National Association of Realtors. Economists had forecast a fall from the previous month to 4.74m. The number of previously owned homes on the market decreased to 2.14m, the lowest since December 2002.

“The results of the latest housing data confirm our view that the market for homes has finally hit bottom,” said Steven Ricchiuto, chief economist at Mizuho Securities.

The Eurofirst 300, the index of leading shares in Europe, started the week with a gain of 2.25 per cent, following three weeks of losses. And the FTSE All-World index added 2 per cent to 213.00, after falling for the past two weeks.

The euro strengthened against the dollar to $1.2803, a gain of 0.5 per cent, and copper gained 1.8 per cent to $7,749 a tonne.

The dollar index, which rises in line with growing risk aversion, fell 0.5 per cent and yields on 10-year US Treasury bonds, which hit two-month lows last week, edged 3 basis points higher to 1.61 per cent.

Recent sessions have been dominated by uncertainty over the outlook for global growth, amid fears the US could tip into recession next year if politicians fail to reach a deal to avoid $600bn of automatic spending cuts and tax rises.

Confirmation last week that the eurozone has slid back into recession, and a failure to agree fresh funds for Greece, added to risk aversion that saw equities around the world lose ground.

But the mood on Monday was brighter following an encouraging start to US budget deficit talks on Friday that prompted hopes a deal could be agreed before the December 31 deadline.

Speaking on a trip to Asia on Monday, President Barack Obama said he was “confident” a deal could be reached with opposition Republican politicians.

“In the coming weeks it is highly likely that we should see some form of development with regards to those areas of the fiscal cliff which both parties share common ground on,” wrote Joshua Mahony of Alpari Research in a note to clients.

Oil prices continued to rise on Monday as conflict in the Middle East between Israel and the Islamist Hamas movement entered its sixth day. The two sides faced mounting international pressure to reach a settlement as the death toll rose and Israel prepared for a ground offensive into the coastal territory. Ban Ki-moon, UN secretary-general, joined an Egyptian-led diplomatic effort to halt the violence in Cairo.

Brent crude futures, the global oil contract, jumped 2.5 per cent higher to $111.70, while the US WTI contract rose 2.6 per cent to $89.18.

Gold prices, which normally fall as investors take on more risk by selling dollar assets, added to earlier gains and rose almost 1 per cent to $1,732 an ounce.

Investors also looked ahead to a meeting of European finance ministers scheduled for Tuesday.

The gathering is expected to push for an agreement between the European Commission, the International Monetary Fund and the European Central Bank – the so-called troika – on deficit targets for Greece, allowing the latest €31.5bn tranche of bailout to be paid.

Christine Lagarde, managing director of the IMF, on Monday cancelled the last leg of her visit to Asia to return to Brussels for the talks.

Earlier, the FTSE Asia index gained 1 per cent to 234.81, with Japan’s Nikkei 225 Stock Average once again the best performer, up 1.4 per cent to a two-month high of 9,153.2.

The Nikkei gained more than 4 per cent last week after Shinzo Abe, leader of the opposition Liberal Democratic party, called for “unlimited” monetary easing to beat Japan’s chronic deflation and the imposition of an inflation target of 2-3 per cent – far above the Bank of Japan’s goal of about 1 per cent.

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