Fiscal Cliff Averted For Now

Published by Filipe R. Costa on Thu, 03/01/2013 - 12:36 in

Tags 

fiscal cliff
fiscal cliff

Daily Market Commentary for January 3: Investors' sentiment turned bullish with the start of the new year as Obama signed into law a bill to avoid the fiscal cliff. The S&P 500 is up 2.5% in its first session of the year and the FTSE closely follows with a rise of 2.2%.

Finally, Obama could reach a deal with Republicans to avert the fiscal cliff and avoid a substantial drag in economic activity. The problem isn’t yet solved as the reached deal is just the result of kicking the can down the road for a few months more, but for now it is satisfying for markets and a motive for buying shares and commodities.

After a tough December for US markets which end rising but by less than 1% while its European counterparts rose substantially, January seems to have started very well and the old “January effect” is playing its role this year again.

The wave of optimism has been dominating but there are already signs of weakness. The Dow closed at 13,412 yesterday but it is currently trading down at 13,368 in pre-market. The Euro was also hit as it failed to surpass 1.3300 and it is currently trading below 1.3100. I believe the wave of optimism can last for a few days, not only because of the intermediate solution reached for the fiscal cliff but also because the latest economic data reported has been quite good. The problem is that an intermediate solution is no definite solution and as time passes it will be difficult to reach a final deal regarding the US debt problem and a new drag on markets will likely occur.

While we wait for new developments in the fiscal cliff front, it is time to concentrate in other matters. Later today, minutes from the FED meeting will be released and the ADP employment report may give some clues regarding tomorrows’ employment situation report, which includes the widely expected non-farm payrolls number.

Market Last price Close Price % 5-Day % YTD
FTSE MIB 02/01/2013 16893.5 3.81 3.43 3.81
IBEX 35 02/01/2013 8447.601 3.43 1.78 3.43
Nasdaq 100 Index 02/01/2013 2746.47 3.21 3.33 3.21
CAC 40 02/01/2013 3733.93 2.55 1.98 2.55
S&P 500 02/01/2013 1462.42 2.54 2.51 2.54
Dow Jones Industrial Average 02/01/2013 13412.5 2.35 2.08 2.35
FTSE 100 02/01/2013 6027.37 2.20 1.47 2.20
DAX (Xetra) 02/01/2013 7778.78 2.19 1.44 2.19
Gold (LBM) $ 02/01/2013 169090 1.84 2.31 1.84
Crude oil (Light Sweet) Composite 02/01/2013 9273 1.02 4.36 1.02
Crude oil (Brent) Composite 02/01/2013 11228 0.95 2.90 0.95
GBP/USD - US $ per £ 02/01/2013 1.6251 0.04 0.78 0.06
Nikkei 225 02/01/2013 10395.25   3.13  
EUR/USD - US$ per Euro 02/01/2013 1.3184 -0.11 -0.33 -0.11
EUR/GBP - £ per Euro 02/01/2013 0.8113 -0.15 -1.11 -0.21