A trader wearing "2013" glasses works on the floor at the New York Stock Exchange Dec. 31, 2012.(Photo: Seth Wenig, AP)
Investors breathed a sigh of relief and pushed U.S. stock index
futures sharply higher after lawmakers agreed late Tuesday on a deal to
avert the 'fiscal cliff' of tax increases and spending cuts.
Without a deal, automatic spending cuts and tax hikes would have gone into effect, threatening the economy.
deal doesn't end the battle between lawmakers, as Republicans have
vowed to revisit more aggressive spending cuts as the need to boost the
country's $16.4 billion debt ceiling looms in February.
the agreement ends months of hand-wringing by investors who have feared
that a failure by lawmakers would cause serious economic shock at a
time when businesses are still slow to hire and profit growth is
starting to sputter.
Without clarity on what tax hikes or
government spending would be in 2013, companies and investors were
unable to make accurate forecasts about the near-term future.
Investors around the world didn't wait for trading to start in New York to celebrate the news.
Stocks around the world started 2013 with hefty gains.
are trading with a sense of relief after lawmakers in Washington agreed
on a compromise to avoid the fiscal cliff that has been the dominant
theme in equity markets since the Presidential elections back in
November," said Mike McCudden, head of derivatives at stockbroker
In Europe, the FTSE 100 index of leading
British shares jumped 2.3%, its first foray above the 6,000 mark since
July 2011. The CAC-40 in France rose 2.2% while Germany's DAX was up
Earlier, in Asia, Hong Kong's Hang Seng index shot up 2.9%
to close at 23,311.89, its highest finish since June 1, 2011.
Australia's S&P/ASX 200 surged 1.2% to close at 4,705.90, its best
finish in 19 months while South Korea's Kospi jumped 1.7% to 2,031.10.
will point out that another argument has been booked in for two months'
time, when the debt ceiling comes up for debate, and Republicans will
be looking to make progress on the spending cuts that haven't featured
in the New Year deal," said Chris Beauchamp, market analyst at IG.
will also keep a close watch on any response from the credit rating
agencies. After a fight in Congress to raise the debt limit in 2011,
Standard & Poor's lowered the U.S. government's AAA bond rating,
citing the lack of a credible plan to reduce the federal government's
debt. It also voiced its concerns about the "effectiveness, stability
and predictability of American policymaking."
will be monitoring the state of the global economic recovery and
Europe's ongoing battle to contain its 3-year debt crisis.
the European economy fares over the coming months will likely hinge on
developments in the debt crisis. In the last few months of 2012,
tensions eased largely in the wake of the announcement of a new
bond-buying plan from the European Central Bank.
"If the second
half of 2012 is anything to go by it seems that on the back of central
bank action investors are presently inclined to turn a blind eye to poor
news and more likely to look on the bright side of events," said Jane
Foley, senior currency strategist at Rabobank International.
has shored up the euro over the past few months and Europe's single
currency eked out further gains Wednesday as investor sentiment was
buoyant in the wake of the fiscal cliff deal. When investors have a
propensity to take on riskier assets, the dollar often loses ground. The
euro was up 0.4% at $1.3243.
Oil prices also pushed higher, with the benchmark New York contract up 83 cents at $92.65 a barrel.