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Published On: Thu, Nov 29th, 2012

Greek Aid Deal Completed, US Budget Talks Stall

Around 2 p.m. in New York, United States-based markets started to decline. Senate Majority Leader Harry Reid announced prior to this that talks over the fiscal cliff were making little progress. By 4 p.m., the Standard & Poor’s 500 Index dropped by 0.5 percent to end the day at 1,398.94 while cocoa, gold and oil commodities dropped lower. The greenback advanced against its 13 out of 16 of its major peers and ten-year United States Treasury yields fell 2.6 basis points at 1.64 percent.
US Budget Concerns
Despite growth in the United States economy, concern over the fiscal cliff has overshadowed United States-based markets in recent weeks. Recent data shows that consumer confidence is at a four year high and demand for capital goods in the United States has increased. Home prices in the world’s largest economy rose by the most since 2010. In spite of the strong economic data, the comments from Senate Majority Leader produced a knee-jerk reaction among investors. If the United States Congress does not resolve the fiscal cliff crisis, automatic tax increases and spending cuts will start at the beginning of 2013. The Congressional Budget Office has previously stated that failing to resolve the crisis could cause a new recession and unemployment levels of 9 percent. In October, the United States unemployment rate was at 7.9 percent.
Last week, the Standard & Poor’s 500 Index enjoyed a rally of 2.6 percent. Since the re-election of President Barack Obama, this index has retreated by 2.1 percent overall. The only industry that advanced during the day’s session was utilities. Telephone companies, financial corporation and the energy sector dropped by at least 0.7 percent.
The Nasdaq Composite Index dropped by 0.53 percent, or 7.35 points, during the session. It ended at 2,967.79. Meanwhile, the Dow Jones Industrial average retreated by 0.69 percent, or 89.24 points, to finish at 12,878.13. The MSCI index of global stocks retreated by 0.2 percent to its most recent tally. Excluding Japan, shares in the Asia-Pacific region grew by 0.5 percent to hover near a three-week high. In Europe, the FTSE Eurofirst 300 index advanced by 0.4 percent.
New Data
Recent reports show that hoe prices rose in September by the largest amount since July of 2010. The S&P/Case-Shiller index reports on the values of homes in 20 cities across the United States. Since September of 2011, the index has advanced by 3 percent. Through August, it advanced by 2 percent.
Non-defense capital goods rose by 1.7 percent in the last month. According to the Commerce Department, this is the largest increase since May of 2012. Overall, orders of all durable goods remained the same. Earlier, a survey of economists had forecasted a drop of 0.7 percent. At the same time, the Conference Board’s consumer confidence index advanced to 73.7 in November from 73.1 in October. This marks the highest level for consumer confidence since February 2008.
Individually, Seagate Technology Plc stocks dropped by 5.1 percent. An analyst at CLSA Asia Pacific Markets reported prior to the decline that the magnitude of personal-computer sales in global emerging markets was more serious than previously believed. Hewlett-Packard Company also saw its shares decline by 3 percent. The company announced earlier that its recent purchase of Autonomy Corporation had uncovered signs of improper accounting. Shares in Corning Inc. gained by 6.9 percent after a forecast was released showing stronger retail demand for their products.
Markets in Europe
In Europe, the Stoxx Europe 600 Index advanced by 0.3 percent. Yesterday, it declined for the first time in five days. In Germany, ten-year bond yields hit a three-week high after the Eurozone decided on a Greek aid deal. Despite the new deal, the euro dropped versus 12 out of 16 of its major peers. Against the South Korean won and South African rand, it fell by more than 0.3 percent. Investors are concerned about the ongoing crisis in Greece and the ability of the aid deal to resolve budgetary problems. Earlier in the week, finance ministers in the Eurozone and the International Monetary Fund announced that they would allow the indebted nation additional time to pay back loans and would cut interest rates.
Greek bonds maturing in February of 2023 rose by 0.645 to end at 34.94 percent of their face value. In Italy, two-year bond yields dropped by two basis points to a level of 1.97 percent. The government sold off the maximum number of 2014 bonds, 3.5 billion euros, at its recent auction. In October, two-year Italian bonds were at 2.397 percent. Spanish bonds also retreated by eight basis points to end at 2.92 percent.
Emerging markets were largely unchanged for the day according to the MSCI Emerging Markets Index. In China, the Shanghai Composite Index dropped below 2,000 for its lowest close since January of 2009. The Brazilian Bovespa index retreated by 0.9 percent while the Micex Index in Russia dropped 0.7 percent by the end of the session. In India, the Sensex gained by 1.7 percent while benchmarks in the Czech Republic, South Korea and Thailand gained by at least 0.5 percent.
New York crude oil retreated during the session by 0.6 percent. It ended the day at $87.19 per barrel. Gold futures were close to their largest decline in the week. During the trading session, gold futures dropped by 0.4 percent to finish the day at $1,742.30 per ounce. The drop in gold futures was mostly attributed to declining purchases in India. March silver future also retreated by 0.5 percent to $34.07.
Canadian Stocks
In Toronto, Canada’s main stock index retreated during Tuesday’s session to finish the day lower. Overall, losses in the energy and mining sectors contributed to the Toronto Stock Exchange’s weak performance. The Toronto Stock Exchange’s S&P/TSX composite index lost 0.6 percent throughout the session. By the end of Tuesday, it was 73.42 points lower at 12,111.63. With speculation over the effects of the Greek bailout and uncertainty in United States markets, the Toronto Stock Exchange has struggled in recent days to make headway.
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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

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