Global Market Overview

Last updated: November 14, 2012 10:56 pm

Stocks slip as fiscal cliff fears linger

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Wednesday 21:10 GMT. Stocks on Wall Street fell for a second session as concerns over the looming fiscal cliff of tax increases and spending cuts overshadowed better-than-expected corporate results.

Economic data has been lacklustre, with figures on Wednesday showing output from eurozone factories in September declined 2.5 per cent, the sharpest monthly contraction since January 2009.

In the US, retail sales in October fell 0.3 per cent against forecasts of a 0.2 per cent drop.

The mood in stocks was particularly downbeat. The FTSE All-World index slid 0.6 per cent to fresh two-month lows as Wall Street’s S&P 500 lost 1.4 per cent and closed at its lowest level since July, despite some well-received results from Cisco. The FTSE Eurofirst 300 retreated 1 per cent.

The latest slip left the US benchmark well below the 200-day moving average of 1,382, rendering it vulnerable to further declines, according to technical analysts.

US equities have fallen to three-month lows – dropping in conjunction with other risk assets – as a disappointing corporate earnings season was followed by renewed fears over a potential default by Greece, delays in Spain over asking for aid and a focus on the potential economic damage caused by the US falling off its fiscal cliff.

Stocks briefly pared some losses after US President Barack Obama said on Wednesday he could get an agreement on extending tax cuts by next week.

The dollar index was flat, US benchmark Treasury yields edged lower at 1.57 per cent and Brent crude rose $1.42 to $109.68 a barrel after Middle East tensions spiked following the killing of a Hamas commander in an Israeli air strike. Gold see-sawed and closed slightly lower at $1,724 an ounce.

“The outlook for risky assets toward year-end is challenging, to say the least,” Barclays analysts said in a note.

“On the one hand, the potential for negative shocks from the US fiscal cliff and persistent problems in Greece and Spain pose downside risks to markets. On the other, markets are flush with liquidity and the Fed put remains in place, which many see as limiting the extent of any further downdraft.”

The “Fed put” refers to the US central bank’s actions to support asset markets, such as its $40bn-a-month of mortgage-backed securities purchases under the QE3 programme.

Minutes of the Fed’s last meeting released on Wednesday showed members of the central bank’s rate-setting committee believe it may need to expand its monthly purchases of bonds in 2013 after the expiration of Operation Twist.

The release of the minutes gave support to the euro, with the single currency rising 0.2 per cent to $1.2733. The currency is still flirting with two-month lows as worries about when Greece will receive its next tranche of aid continue to weigh on the currency.

Indeed, underlying eurozone tensions ensured Spanish 10-year bond yields rose 7 basis points to 5.92 per cent as a wave of anti-austerity strikes across Europe highlighted the social fracture caused by the bloc’s debt woes.

Earlier, Asian bourses were generally positive, although somewhat reticent as they awaited the conclusion of China’s Communist Party Congress to choose new leaders. Investors will try to infer from the outcome an indication of future policy direction in the world’s second-largest economy.

The FTSE Asia Pacific index rose 0.1 per cent after the Shanghai Composite rose 0.4 per cent and Tokyo’s Nikkei 225 managed to break a seven-day losing streak with a gain of just 0.04 per cent.

Additional reporting by Jamie Chisholm in London

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