Saturday 20 January 2018

World markets surge after Obama strikes ‘fiscal cliff’ deal

Peter Flanagan and Marc Jones

MARKETS across the globe surged this morning, as traders heaved a sigh of relief over the US debt talks.

European shares jumped to a 19-month high, while Asian markets hit their highest point since August. US stock futures also rose sharply ahead of markets opening there this afternoon.

The Stoxx Europe 600 Index (SXXP) climbed 1.7pc in early trading, while in London the FTSE 100 Index topped 6,000 for the first time since May 2011.

The US House of Representatives passed the budget legislation just after 11 pm in Washington yesterday, breaking a year-long impasse over how to head off more than $600bn in tax increases and spending cuts set to start taking effect yesterday.

“It’s good to get the US budget deal resolved and to get the details, as it’s been dragging on for a while,” said Andrea Williams, head of European equities at Royal London Asset Management. “Politics were a real ball last year; this year started well, it’s a strong start.”

The FTSE, the Paris based CAC 40 Index, and Frankfurt’s DAX all climbed by more than 2pc. In Dublin, the ISEQ Overall Index surged 1.6pc.

"This is great news for global growth and explains why shares and other growth-related assets are up strongly today," said Shane Oliver, strategist at AMP Capital.

Although the US deal is not as far-reaching as markets had wanted, last night’s approval by the House of Representatives of a plan already backed by the Senate allayed fears that Republican objections to the heavy emphasis on taxes rather than spending cuts could have scuppered an agreement.

Assets which are traditionally see as more risky rose across the board with crude oil futures up 1.1pc, gold gaining $7 an ounce and copper futures in London up 1.7pc.

In currency markets the euro rose to $1.3281 as the dollar fell 0.5pc against a basket of major currencies .

The Japanese yen also continued its slide, hitting its lowest level since July 2010, as investors bet that the Bank of Japan would have to take ever-more aggressive easing steps to support the economy and satisfy the new government.

The pattern was the same for bonds, where prices of higher-yielding Spanish and Italian government bonds rose and the German equivalent, usually favoured by risk-averse investors, fell. The Bund future was last 89 ticks down at 144.75.

"The compromise is supportive for risk sentiment as we've seen in a few markets already and it should weigh on Bunds which should correct in line with (US) Treasuries. Treasuries could even underperform," said Rainer Guntermann, a strategist at Commerzbank.

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