Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a647859

FTSE breaks through 6,000 after US averts dreaded fiscal cliff

(Update) Global markets rally as investors express relief at the last-minute US budget deal.

 
FTSE breaks through 6,000 after US averts dreaded fiscal cliff

Stock markets leapt higher on Wednesday, breathing a sigh of relief after the US Congress finally approved a deal to avert a damaging series of US tax rises, while delaying sharp spending cuts.

The House of Representatives last night passed a Senate-supported bill to avoid a ‘fiscal cliff’ by 257 votes to 167, removing a burden that has restrained markets for months. The compromise bill imposes tax rises on the wealthy, but avoids increasing the burden on middle- and working-class Americans.

Britain’s FTSE 100 jumped 144 points or 2.5% to breach the key 6,000 level and trade at 6,041, with similar gains on other major European markets. In the US, the Dow Jones climbed by 1.7% to 13,331.

The euro, now seen as a gauge of investors’ appetite for risk, rallied by 0.55% to $1.327, with the US dollar moving in the other direction to 79.5 against a basket of currencies. 

Economists had warned that falling over the fiscal cliff could have plunged America into a deep recession, which would in turn hurt economies around the world.

For more information read our Fiscal Cliff Q&A

Relieved investors – many of whom had deemed the cliff the greatest threat to global markets – will, however, know that US budgetary bickering it is not over yet, with fresh talks needed over spending cuts and raising the debt ceiling.

'Sequestration and debt ceiling negotiations will come down the river in short enough order to keep us busy, and the path for the US debt level is now higher, which will concern the rating agencies, but the market reaction today is unequivocally "risk on",' commented Kit Juckes of Societe Generale. 

US president Barack Obama, who had promised to increase taxes on the wealthy in his re-election campaign, signalled his intention to avoid more drawn-out negotiations: 'The one thing that I think hopefully in the New Year we'll focus on is seeing if we can put a package like this together with a little bit less drama, a little bit less brinkmanship, not scare the heck out of folks quite as much.'

In the UK sentiment was further improved by a surprisingly good report of manufacturing activity. The Markit/CIPS PMI survey showed factory output jumped to its fastest rate since September 2011 last month. 

Banks and miners led the FTSE higher after yesterday’s Bank Holiday, with only a couple of losers among London blue chips. Barclays (BARC.L), up 4.8% to 275p, was among the top gainers after Investec raised its target price on the bank from 260p to 285p.

Resources companies Xstrata (XTA.L), Glencore (GLEN.L) and Evraz (EVRE.L) all rose by around 7%.

As well as the news from the US, resources companies were also bolstered by more signs of China’s economic recovery, with yesterday’s reading of the official manufacturing purchasing managers’ index for December matching November’s 50.6, a number that indicates expansion.

The oil price was also boosted by today's economic optimism, with Brent crude futures 1.2%% higher at $112 a barrel.

19 comments so far. Why not have your say?

Jonathan

Jan 02, 2013 at 14:32

In Zimbabwe shares were soon worth trillions of Zimbabwe dollars (but so were a pack of 6 eggs).

Does this reflect on the health of their shares or the decreasing value of their dollar.

A 2013 GBP is not the same as a 2008 GBP and this is not accounted for in the number of the FTSE 100.

report this

Michael Peters Fenwicks

Jan 02, 2013 at 14:37

Best Advise - take the profits where you can......simple.

report this

Rob Walker

Jan 02, 2013 at 14:55

Yep. Take the profits. US debt is growing by the minute and no-one over There seems to want to pay their way in the world. It will all end in tears.

report this

John Lacy

Jan 02, 2013 at 14:55

Perhaps I'm becoming cynical but my immediate reaction is to sell all of my shares now before the market manipulators sell out and take their profit.

The Americans haven't really solved the problem at all and we'll be back with the doom and gloom very shortly as the market manipulators crash the price to buy back in bigger and cheaper with their newly acquired gains.

Not a real rally at all!!

report this

an elder one

Jan 02, 2013 at 15:12

For retail investors to sell all off now - and presumably buy back later - is to put you back to end of 2012 surely, so what's the point? In any case this is a small one day blip; hardly a rally!

report this

an elder one

Jan 02, 2013 at 15:13

John Lacy

Jan 02, 2013 at 15:25

an elder one----I wasn't advocating the smaller retail investors doing this just pointing out that this is what the big boys are going to do at the expense of those investors who may not be nimble enough to recognise the scam and take the profit whilst it is still there

report this

Tony Peterson

Jan 02, 2013 at 15:38

You know, 1975 started like this. Inflation. Only downward real movement in stocks for years. And the markets near despair.

Subsequently the then main index rose over 150% in the year. Imagine that. FTSE 100 at 15000 by Xmas. Anything can happen.

Keep on sitting on your depreciating cash, doomsters! Take profits, all you nervous nellies! I topped up my Vodafone holdings in the present dip this morning.

report this

an elder one

Jan 02, 2013 at 15:46

John, of course you're right and one is not necessarily a cynic for holding that view; it's the way the finance people make their dosh; they don't make anything useful for barter except those same instruments for others in the club (at a price!).

report this

Mr B-Mused

Jan 02, 2013 at 16:01

an older one - matching people with surplus funds and those requiring funds has its uses. I thought wisdom came with age?

report this

an elder one

Jan 02, 2013 at 16:41

Mr B-Mused, I seem to have touched on a nerve, judging by your sarcasm; truly I am well aware of the beneficial uses of finance and indeed participate in that regard as a private investor in equities, but it is the manner of making the stuff that is lacking of a moral dimension at times. To my simple mind, money is just a necessary proxy for barter and finance manages its relative valuations of produce and means of production in that context and facilitates its movements and availability; but the real growth of the wealth of nations is in the exploitation of scientific discoveries in research of all complexions; engineering, medicine, technologies of all sorts, all subject to the notional valuations of the money lenders of course, relative to their personal priorities.

Just a point of view.

report this

MattM via mobile

Jan 02, 2013 at 20:02

Tony, you're a man after my own heart!

Take profits and then do what? I'll keep holding, thanks!

report this

an elder one

Jan 02, 2013 at 20:32

The only stuff worth holding are real assets for the long term; dodging in and out of cash, for the average bod, is just that; dodgy.

report this

merchant_adventurer

Jan 02, 2013 at 20:55

There is a decent article somewhere on the Motley Fool site that quotes Charlie Munger as discussing incentives.

This is then applied to the House of Congress with regard to the ballooning debt.

Basically since 1995 the US debt has trebled to $15tn.

In 1995 the interest payments on $5tn were around $230bn but because interest rates are at the current negligible levels the interest payments on $15tn are still around $230bn.

So they are gorging on 3 times the debt for the same repayments.

That being the case there is little incentive to reduce debt levels whilst interest rates are so low.

The big issue comes when interest rates rise and how quickly.

Similarly a number of the representatives are being replaced soon so it was probably career beneficial for them to get "face time" during this debate or just an opportunity to create mischief prior to being replaced.

Needing to be re-elected does not seem to a tangible risk to any of them.

report this

Tony Peterson

Jan 02, 2013 at 21:22

Thanks, Anonymous.

I hope that the doomsters and sell-nowers are right, and a huge round of profit taking starts tomorrow.

Why?

Because it will create an even better opportunity somewhere to place a big GSK dividend tomorrow. Then there's more from Sainsburys on Friday, Marks next week and the biggest of all from National Grid the week after.

So let's hope that those mythical manipulators in the City get their skates on and start shorting.

Anyone can secure their old age if they start acquiring income producing assets on their own behalf during their working lives (and beyond). It is astonishing how quickly compound growth starts to multiply value faster than inflation.

A propos of which I must say it is important, if your portfolio can stand it, to take profits up to your CGT allowance every tax year. Otherwise (now that indexation has been abolished) you could end up being taxed on gains that are not real gains at all. CGT has become a tax on inflation. Some selling is vital. But cash is the only asset absolutely guaranteed to lose real value.

Energy, food, rail fares, are all certain to boost inflation, and, as Merchant Adventurer points out that is the undeclared way that governments are going to balance their books. As if it was important.

report this

Geoff Downs

Jan 02, 2013 at 21:33

This guy Tony Peterson is classic. He first tells you how successful he has been as an investor, then he tells you what stocks he's investing in. He is so desperate for you to make money like him, LOL.

Perhaps, just perhaps, he has another motive for letting you know the stocks he's just purchased.

report this

Tony Peterson

Jan 02, 2013 at 21:42

Oh dear, Geoff Downs has caught me out. There I was trying to seduce all of you into buying up all my portfolio.

I love conspiracy theorists.

report this

Ryan McC

Jan 02, 2013 at 21:55

As the value of fiat currencies depreciates, should stock prices not increase/adjust accordingly?

report this

MattM via mobile

Jan 02, 2013 at 22:30

I've for another 30 years before I retire so I can take some risk. The rally is fine. I've almost used up my stocks ISA this year anyway.

Tony, you've been caught out talking up those niche penny stocks that no one holds...

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Henderson Global Investors: 2014 looks set to be another strong year for UK commercial property


Andrew Friend, acting co-manager*, and Marcus Langlands Pearse, co-manager of the Henderson UK Property Unit Trust (HUKPUT), provide an overview of the key risks and opportunities for the UK commercial property market.

More about this:

Look up the shares

  • Barclays PLC (BARC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • EVRAZ plc (EVRE.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Rio Tinto PLC (RIO.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Glencore International PLC (GLEN.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Eurasian Natural Resources Corporation PLC (ENRC.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Xstrata PLC (XTA.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Investment Trust Insider: DIY Investor Safety Manual

by Gavin Lumsden on Apr 16, 2014 at 15:17

Sorry, this link is not
quite ready yet