Thursday 14 November 2019

Shares and euro climb as talks gain momentum

WORLD shares and the euro edged higher today as the US prepared to resume negotiations to avoid a fiscal crunch, while the yen hit a two-year low on the prospect of drastic monetary easing.

President Barack Obama will try to revive budget crisis talks which stalled last week when he returns to Washington today after cutting short his Christmas holiday in Hawaii.

In a sign that there may be a way to break the deadlock in the discussions, Republican House of Representatives Speaker John Boehner urged the Democrat-controlled Senate to act to pull back from the so-called "fiscal cliff" and offered to at least consider any plan the upper chamber produced.

Returning from the Christmas holiday break, the pan-European FTSEurofirst 300 climbed 0.1pc as London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX added between 0.1pc and 0.6pc.

Earlier small gains in Asia meant the MSCI index of world shares was up 0.25pc by 1045 GMT and a 0.1pc gain in US stock futures suggested Wall Street was also likely to start higher.

"There is still hope for a last-minute deal, otherwise we're in for a correction in January. People have already priced in an agreement. Without it, the market can't stay at these levels," a Paris-based trader said.

Economists warn that the "fiscal cliff" of higher taxes and spending cuts worth $600 billion could push the world's largest economy into recession, dragging other countries with it.

Such concerns underpinned the dollar as the fiscal impasse continues to sap investor appetite for risky assets, raising the dollar's safe-haven appeal.

Against the Japanese currency, the dollar at 85.87 yen reached its highest since September 2010, with investors accelerating their yen sales after Prime Minister Shinzo Abe said his newly-formed government would pursue a bold monetary policy, a flexible fiscal policy and a growth strategy to encourage private investment.

The yen has now fallen roughly 10.5pc versus the dollar in 2012, its biggest annual drop since 2005. At the same time Japan's benchmark Nikkei share index is at a 21-month high and is now up 22pc for the year.

"The present yen weakness is related to the new government, which seems devoted to push through both fiscal and monetary policy changes and take direct measures to weaken the yen," said Richard Falkenhall, currency strategist at SEB in Stockholm.

"Yen weakness could very well continue. We see the yen as extremely over-valued considering the weak fundamentals we see in Japan," he added.

The euro, which is being supported by a recent improvement in the outlook towards the euro zone, climbed 0.4pc to $1.3266.

French consumer confidence data helped consolidate the rise as it rose unexpectedly in December to the highest level since August despite increased concerns about rising unemployment.

Things appeared less certain in Italy though. Morale among manufacturers rose slightly for the second month in a row but broader business morale fell to its lowest level on record.

The data underscores the difficult task facing whomever wins a national election in February to revive an economy in a deep recession which shows little sign of easing.

In commodity markets, London copper rose 1.7pc to a one-week high of $7,932 a tonne after some positive data from China, the world's top copper buyer whose economy is now a key driver of global growth.

Profits earned by China's industrial companies jumped 22.8pc in November from a year ago, accelerating from October's 20.5pc, Beijing reported. "People are hopeful that China's economy will recover next year," said Zhang Ao, an analyst at Minmetals Futures.

The US wrangling hung over oil, however. Brent crude slipped back below $111 a barrel although the Chinese data, fresh unrest in the Middle East and hopes that the new Japanese government's policies would spur demand, helped limit the drop.

With bond investors also focusing on Washington, German government bond futures were little changed at 144.72.

Analysts believe that even if a US compromise is not reached before year end - as initially expected - budget measures could be agreed in January and enforced retroactively.

"Safe-haven assets (such as Bunds) should remain supported as long as the fiscal cliff debate remains unsolved. But there is no sense of panic. The market has come to some sort of understanding that the end of December is not an extremely hard deadline," said Commerzbank rate strategist Rainer Guntermann.


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