Stocks fell in Europe, the United States and in morning trade in Asia and could be in line for more weakness as worries about Washington’s ability to find a timely solution to the “fiscal cliff” continue to dominate investor thinking. Along with new fears on how the Euro zone shall tackle its debt problems, global markets are set for a dumpy ride for the end of the year. As stock markets fall the Euro is under renewed pressure and trades at a two-month low. In spite of the Greek Parliament’s approval of new austerity measures yesterday, Greek bail-out funds are kept on hold. The German Minister of Finance stated that the approval of the austerity package was not enough to keep Greece in the Euro.
McDonald’s shares fell 2 percent after the world’ largest hamburger chain reported its first monthly drop in global sales since 2003. Another heavy weight, Apple, fell 3,6 % and is down 20 percent from its all-time high of USD 705 a share in September. The leading chips supplier, Qualcomm, was the exception gaining 4,4 percent on an otherwise dark session. Investors worry that if no deal is reached in Congress over some 600 billion in spending cuts and tax increases, the slow recovery seen will be reversed. A comprehensive agreement to avoid the “fiscal cliff” still seems possible. A more likely scenario is for political leaders to find a temporary fix to buy time until the new Congress and Obama are sworn in early next year. The prospect of haggling over the budget has deepened investors’ uncertainty and tends to explain market’s reactions over the last days.
The Euro was furtherly undermined after the European Central Bank, ECB, as expected kept rates on hold yesterday. The President of ECB, Mario Draghi, sounded downbeat on the euro zone economy and stated that he was ready to start new purchases of bond. Faced with overwhelming problems European leaders once again seem to be mostly occupied by buying time. This creates downside risks for the Euro which is likely for a new test of bottom levels between 1.20 and 1.25 seen some months ago. The announcement of European bond buying and expectations for continued monetary easing in Obama’s second term has strengthened gold which has jumped more than 50 dollars since the beginning of the week, trading at 1735.
Oil prices have stabilized and copper is up. Brent crude is at 107,58. China presented lower than expected inflation figures and other data that indicates a slow turn around in Chinese economy. The Chinese Communist party congress is simultaneously electing a new leadership, securing a smooth transition to a younger generation of leaders who will be faced with corruption, economic and political reforms as their major challenges.
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