Global Market Overview

Last updated: December 19, 2012 9:32 pm

Global stocks near 17-month highs

Wednesday 21.15 GMT. Global stocks are trading near 17-month highs even as investors are having their faith in a US budget deal sorely tested.

The FTSE All-World equity index is up 0.2 per cent to 225, its loftiest level since July 2011, after the Asia-Pacific region added 1.1 per cent and as the FTSE Eurofirst 300 continued its good run of form. The Europe-wide barometer gained 0.4 per cent as Germany’s Dax index closed in on a five-year high.


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Global Market Overview

Wall Street’s S&P 500, though, is threatening to thoroughly spoil the party. It ended down 11 points at 1,436, accelerating into the close and dashing hopes that it will soon break to new four-year highs.

Progress in Washington since the weekend had led many traders to believe the chances of some sort of agreement remain quite good. But that generally positive mood is now being pitted against partisan rhetorical salvos, like the White House’s statement on Wednesday that it would veto the Republican’s “plan B”; comments which first pulled equity benchmarks off the session’s highs.

Stocks took another dip after Republican Speaker John Boehner said - in a press conference lasting less than one minute - he would press on with “plan B”, regardless of the veto threat.

“Wow. If you think they are close [to a deal], boy, are you wrong,” Andrew Brenner of National Alliance Securities told his clients. “Doesn’t sound close to me.”

Analysts and many investors have for several weeks been professing a fear that the fiscal cliff’s $600bn of automatic spending cuts and tax increases slated to take effect next year, would likely push the US economy into recession.

Bulls at least had the continuing reduction of eurozone sovereign debt tensions to comfort them. Italian and Spanish borrowing costs sit near multi-month lows and the euro is up modestly to $1.3234, near an eight-month high. The currency is also benefiting from news that the Ifo index of German business sentiment rose again in December.

The improvement in the mood even extends to debt-beleaguered Greece. Standard & Poor’s, the rating agency, has raised its assessment of Athens’ sovereign debt by several notches, citing the eurozone’s “strong determination” to keep the country inside the common currency area.

A currency going in the other direction of late is the yen – though this is not considered a negative sign to buyers of Japanese assets. In fact, the Nikkei topped 10,000 for the first time since April on expectations of aggressive monetary easing.

The yen is down 0.2 per cent versus the dollar to Y84.40 after Japan reported its fifth straight trade deficit in November. But the data are only seen heightening pressure on the Bank of Japan to introduce more stimulus to boost the slowing economy.

The Nikkei 225 Stock Average rose another 2.4 per cent as exporters continued to benefit from the yen’s weakness.

The index has now surged 17.3 per cent in just five weeks and this corresponds with a move out of Japanese government bonds. Yields on the 10-year JGB are 0.79 per cent, a two-month high.

Similar trends can be seen in other perceived bond havens. The yield on the US 10-year note is down 2 basis points to 1.80 per cent on Wednesday, but still it sits near the top of a 30 basis-point range of 1.55-1.85 per cent that has held since the start of August.

A $35bn auction of new five-year paper by the US Treasury on Tuesday saw relatively lacklustre demand, but Wednesday’s $29bn seven-year sale drew interest in line with the average of recent auctions. The interest rate on the new bonds was set at 1.235 per cent, in line with the market.

The US dollar index is currently down 0.1 per cent.

In commodities markets, higher risk appetite has been underpinning prices but Wednesday’s moves are patchy. Brent crude is up $1.35 to $110.19 a barrel but copper is dipping 1.1 per cent to $3.60 a pound.

Gold has been volatile after the previous session’s heavy slide to three-month lows. The bullion is currently fractionally lower at $1,668 an ounce.

Additional reporting by Song Jung-a in Seoul and Stephen Foley in New York

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