Budget talk’s optimism spurs Wall Street rally

Stocks rallied for a second consecutive session on Monday after budget talks created optimism that Democrats and Republicans would be able to tackle the fiscal crunch and avoid tipping over the “fiscal cliff”. The optimism spilled over to the Asian markets where the Nikkei share average in Tokyo extended its rise into a fifth day in morning trades. The gains were limited by profit taking and Bank of Japan’s (BOJ) awaited policy decision later in the session. It is expected that BOJ will keep policy unchanged. The Asian-Pacific index, MSCI, rose 0,6 percent. 

The dollar was steady against a basket of currencies moving away from the two-month high reached on Friday. Precious metals jumped 3 percent on Monday on the dollar’s retreat. Gold reached 1735 and silver trade up close to a dollar on 33.20. USD/JPY is trading at 81.25. Oil prices have increased substantially on tensions in the Middle East. Brent crude reached its highest price level for weeks trading above USD 111 a barrel. NYMEX, New York crude, is sniffing on the 90 level. 

Wall Street stocks climbed almost 2 percent extending a rally started on Friday. The rise reflected investors’ view that US lawmakers will be able to reach a compromise to avert USD 600 billion in tax increases and spending cuts due to start in January. This so called “fiscal cliff” threatens to send the US back into recession.

Prospects that Greece will get a lifeline to stay solvent also helped boost markets. The international rating agency, Moody’s, downgraded France’s government bond rating to A1 and kept a negative outlook on the country’s uncertain fiscal outlook and deteriorating economic prospects. The downgrade put the Euro under pressure. Euro/USD fell from a two week high on 1.2810 on Monday to 1.2777 in early Asian trade. It has regained and trades at present on 1.2796. 

The Euro zone finance ministers are expected to give a tentative go-ahead for the disbursement of 44 billion euro in emergency loans to Greece later today. Differences between the finance ministers and the International Monetary Fund (IMF) on how to tackle the Greek crisis, however, remain, and a positive decision shall in no sway be taken for granted.

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