Global Market Overview

Last updated: November 29, 2012 9:12 pm

Stocks rise on hopes of US budget deal

Thursday 21:05 GMT. Stocks and industrial commodities were generally firmer on hopes a US budget compromise can be reached that will stop the world’s biggest economy from falling off its fiscal cliff at the end of the year.

The FTSE All-World equity index rose 0.9 per cent after the FTSE Asia Pacific index gained 1 per cent, with the region closing at its best level since May.

The FTSE Eurofirst 300 gained 1.1 per cent as miners lead the charge, and New York’s S&P 500 added 0.4 per cent to to 1,415 after mostly-supportive US third-quarter GDP revisions, weekly jobless numbers and home sales data.

Copper rose more than 2 per cent to $3.61 a pound and Brent crude advanced 1 per cent to $110.58 a barrel. Gold recovered $6 to $1,725 an ounce following heavy losses in the previous session.

Demand for perceived havens eased, with the dollar index falling 0.2 per cent. Bunds were also under pressure, pushing yields up 1bp to 1.38 per cent, on dissipating eurozone sovereign debt tensions, helped by a solid €6bn auction of Italian bonds that saw Rome’s borrowing costs fall to a two-year low. The euro was up 0.2 per cent to $1.2970.

Demand at a US government bond auction was also solid.

The US Treasury department concluded this week’s refunding program with the sale of $29bn in 7-year notes at a high yield of 1.045 per cent. The bid-to-cover ratio, a measure of demand at government auctions, came in at 2.81 versus 2.56 in the previous sale.

Traders have become more optimistic that an agreement in Washington over the expected tax increases and spending cuts will be reached in coming weeks. Still, stocks pared some of their gains after John Boehner, Republican Speaker of the House, said that there has been no substantial progress in talks between the White House and congressional leaders in the past few weeks.

A reminder of how high the stakes are in ensuring a fiscal deal were illustrated in the Federal Reserve’s Beige Book, a summary of anecdotal reports from the business sector.

Many companies, according to the survey, are becoming very reticent as the debate drags on, with activity likely to be affected well into 2013 even if an agreement is reached by the new year.

In Asia, Tokyo’s Nikkei 225 rose 1 per cent on Thursday, as investors continued to absorb comments from Shinzo Abe, the man likely to be prime minister after the upcoming election, in which he called for the Bank of Japan to undertake “unlimited easing” in order to spark up the economy and tackle deflation.

But the mood among investors in Tokyo again stood in stark contrast to those in Shanghai, where the Composite index fell another 0.5 per cent to 1,965, its lowest since January 2009.

The latest slide in the SCi comes even though its constituents trade at an average 10.9 times reported earnings, the lowest level since at least 1997 and half the 24 average over the past decade, according to Bloomberg.

Additional reporting by Jamie Chisholm in London

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