World Markets Rally on Hopes of a Fiscal Cliff Deal

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By Pan Pylas


LONDON (AP) - Optimism over the prospects of a U.S. budget deal between the White House and Congress buoyed markets once again on Wednesday.

For weeks, the budget discussions have overtaken Europe's battle to contain its debt crisis as the focus for financial traders.

This week, market sentiment has improved noticeably as many investors think it's only a matter of time before President Barack Obama and Republican leaders agree a deal to avoid the so-called "fiscal cliff," a series of automatic tax hikes and government spending cuts that will start coming into effect at the start of next year and have the potential of derailing the U.S economic recovery.

"Investors are still optimistic that a deal will be done following positive talks earlier in the week," said Craig Erlam, market analyst at Alpari. "We're likely to see risk assets continue to rally now for the rest of the year, unless talks collapse which at this stage is unlikely."

In Europe, the FTSE 100 index of leading British shares was up 0.6 percent at 5,972 while Germany's DAX rose 0.3 percent at 7,676. The CAC-40 in France was 0.5 percent higher at 3,667.

Wall Street was poised for a steady opening, with both Dow futures and the broader S&P 500 futures up 0.2 percent.

The perky mood was also evident in the currency markets - when investor appetite for risk is high, traders often pile into currencies like the euro as opposed to the dollar, widely perceived as a safe haven. The euro was up a further 0.4 percent at $1.3270, near its highest level since early May.

The euro has also advanced in recent weeks from a stabilization in Europe's debt crisis, which earlier this year appeared to be threatening the currency's future.

"The second half of this year has brought a greater sense of commitment from eurozone officials towards maintaining the coherence of monetary union," said Jane Foley, an analyst at Rabobank International.

Tuesday's decision by Standard & Poor's to lift its credit rating on Greece by six notches also helped shore up Europe's single currency. The agency said the upgrade reflected its view that the other 16 countries using the euro are determined to keep the Greece inside the currency union.

Attention over the coming days will likely remain on the U.S. budget. Optimism over their progress has been largely borne from developments earlier this week.

On Monday, Obama offered to freeze income tax rates for taxpayers making $400,000 or less and raise them for people making more. Previously, Obama wanted higher taxes for individual income above $200,000, or $250,000 for couples.

And Republican House Speaker John Boehner would allow income tax rates to rise for people making more than $1 million per year and would hold rates where they are for everyone making less. The top rate on income exceeding $1 million would go from 35 percent to 39.6 percent. Previously, Boehner opposed allowing any tax rates to go up.

Earlier in Asia, stocks did well too, with Hong Kong's Hang Seng index up 0.6 percent to 22,623.37 and Shanghai's main index of Chinese shares closing flat at 2,264.30.

Japan's Nikkei 225 index was the start turn, surging 2.4 percent to close at 10,160.40, the first time the benchmark has closed above 10,000 since April 3.

The stock market advance came three days after a landslide election victory by the Liberal Democratic Party. Former Prime Minister Shinzo Abe, head of the LDP, has pledged to keep the yen from strengthening and take measure to boost the deflation-mired economy.

Oil prices tracked equities higher with the benchmark New York rate up 40 cents at $88.80 a barrel.

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9 Comments

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nnojr

I sit here looking at -99.06 and Huff talks about a Rally?????? And there is no deal, GOP continues to play games with the futures of the American People. Obama has come half way and the GOP hasn't really moved!

December 19 2012 at 4:10 PM Report abuse rate up rate down Reply
Kuntheer

Markets Rally on Hope

Hope: I'm not falling for that again !!!!!!

December 19 2012 at 3:40 PM Report abuse rate up rate down Reply
Doc

Please consider that all this commentary is based on a falsity. There is no "fiscal cliff." And, even were same to exist, the sensible man would support a halving of the Military-Intelligence budget ASAP!!! Time to end the insanity!!!

December 19 2012 at 2:34 PM Report abuse rate up rate down Reply
Frankie

Republicans are the most uneducated among us and they should ALL be voted out next election. There is no one more stupid than a republican.

December 19 2012 at 2:32 PM Report abuse +1 rate up rate down Reply
1 reply to Frankie's comment
Tom

I am an independent and I would say that both parties are pretty friggin stupid and unfair . The Republicans are either greedy or hate Obama because he is black and the Democrats want to spend spend spend and tax tax tax-sorry people the rich can't pay for everything and I got news for you that with social securit ty and medicare you may have put money in but if you have been pulling on it for more than 6 years you are likely to be pulling more than what you put in at the low rates you paid in and thats on and will be on the backs of the younger generations No I don't want to throw granny in the street but if you have not put the money you are trying to pull out and you can support yourself than MEANS TESTsocial security and medicare premiums.
You got your far right nutjobs like Rush Limbaugh and than you got your far left nutjobs like that Ed dude on MSNBC -Point is we are going to have to compromise which is hopefully where we are headed

December 19 2012 at 3:35 PM Report abuse rate up rate down Reply
estein4124

Today the only rally is on energy, & is weighing on the market with again bs and speculation on supply & demand. Energy must be in check in this fragile enviroment to help make this work. Period. We can't go back to this, or the cliff gets steeper.

December 19 2012 at 12:01 PM Report abuse rate up rate down Reply
usaguy45

No matter which way you look at it we are all screwed!

December 19 2012 at 11:41 AM Report abuse +2 rate up rate down Reply
YourFtr

Yes; Obama will give each world country One Billion dollars just as soon as he can wring it out of Boehner and the US Taxpayer.

December 19 2012 at 11:01 AM Report abuse -1 rate up rate down Reply
patsy

Obama want,s to go over the cliff, then blame the republicans and spend, spend all the want. The only bad thing is Obama will own everything. Let see how the democrats go down in history, no budgets,no spending cuts, way to go.

December 19 2012 at 9:45 AM Report abuse -2 rate up rate down Reply