World stocks, euro climb as US to resume budget talks

Updated 28 December 2012
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World stocks, euro climb as US to resume budget talks

LONDON/NEW YORK: World stocks and the euro edged higher yesterday as US lawmakers prepared to resume negotiations to avoid a fiscal crunch, while the yen hit a two-year low on expectations a new government in Tokyo will push for aggressive monetary stimulus.
President Barack Obama will try to revive budget crisis talks, which stalled last week, when he returns to Washington after cutting short his Christmas holiday in Hawaii.
In a sign there may be a way to break the deadlock, Republican House of Representatives Speaker John Boehner urged the Democrat-controlled Senate to act to pull back from the so-called "fiscal cliff" and offered to at least consider any plan the upper chamber produced.
The MSCI global index was up 0.2 percent, while US stocks opened nearly flat. Japan's Nikkei had earlier hit a 21-month high, amid signs the country's authorities are preparing to ease policy considerably.
On Wall Street, the Dow Jones Industrial Average was down 6.01 points, or 0.05 percent, at 13,108.58. The Standard & Poor's 500 Index was down 1.07 points, or 0.08 percent, at 1,418.76. The Nasdaq Composite Index was down 1.55 points, or 0.05 percent, at 2,988.60.
"As we've seen this year, the market really trades on the last headline or the last sound bite that you get in spite of fundamental indicators," said Keith Bliss, senior vice-president at Cuttone & Co. in New York.
"For this week, it's been all about when they are going to have a conversation and what that conversation is going to be like."
European shares were up 0.2 percent as trading resumed after the Christmas holiday break.
Economists warn that the "fiscal cliff" of higher taxes and spending cuts, which are worth $ 600 billion and set to kick in from January, could push the world's largest economy into recession, dragging other countries with it.
The dollar rose to 85.92 yen, its highest since August 2010. It was last up 0.4 percent on the day at 85.91 yen with option barriers cited at 86 yen and stop loss buy orders above 86.10 yen.
Investors accelerated their yen sales after Prime Minister Shinzo Abe said his newly formed government would pursue a bold monetary policy, a flexible fiscal policy and a growth strategy to encourage private investment.

The yen has now fallen roughly 10.5 percent versus the dollar in 2012, its biggest annual drop since 2005. At the same time Japan's benchmark Nikkei is now up 22 percent for the year.
"Yen weakness, based on expectations that the new Japanese government will succeed in driving the dollar to 90 yen with a combination of more aggressive monetary and fiscal policy, is offering support to other currencies," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
The euro, meanwhile, rose for a second straight session and traded above $ 1.32 for eight consecutive days partly on position adjustment going into the end of the year and a growing view that euro zone debt tensions have eased.
In commodity markets, London copper rose 1.7 percent to a one-week high of $ 7,945.25 a ton after some positive data from China, the world's top copper buyer whose economy is now a key driver of global growth.
Profits earned by China's industrial companies jumped 22.8 percent in November from a year ago, accelerating from October's 20.5 percent, Beijing reported. "People are hopeful that China's economy will recover next year," said Zhang Ao, an analyst at Minmetals Futures.


Saudi Arabia’s economy in a ‘sweet spot’, says US bank

Updated 4 min 28 sec ago
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Saudi Arabia’s economy in a ‘sweet spot’, says US bank

  • Bank of America Merrill Lynch Global Research: “With a more entrenched current account surplus possible this year, FX reserves could increase.”
  • “Reforms are likely to broadly proceed, even at these levels of oil prices, although spending may increase further above baseline expectations.”

LONDON: The Saudi Arabian economy is in a “sweet spot”, with higher oil prices allowing the Kingdom to boost spending while not having a significant impact on the country’s fiscal balance, according to Bank of America Merrill Lynch Global Research.

“Our meetings on Saudi Arabia comfort us in our view that the economy is in a sweet spot. Higher oil prices are allowing the focus on boosting activity not to materially impact fiscal balances,” the note said, published following the IMF and World Bank Spring meetings held in Washington DC this month.

“With a more entrenched current account surplus possible this year, FX reserves could increase this year,” the note said.

The bank forecasts the country will continue to push forward with its reform process regardless of the rising price of oil. Many of Saudi Arabia’s reforms are part of its Vision 2030 that aims to diversify the country’s economy away from its reliance on oil.

Brent oil reached a three-and-a-half year high on 19 April, hitting $74.74 a barrel.

“Reforms are likely to broadly proceed, even at these levels of oil prices, although spending may increase further above baseline expectations,” the note said.

The bank was also upbeat about Egypt’s economic prospects, noting that the country’s “macro stablization” is continuing and that its reform program, which includes cutting fuel subsidies and reforming the tax system, remains “intact”.

“Authorities are on track to achieve a small 0.2 percent of GDP primary surplus this fiscal year. The target is to bring the primary surplus to 2 percent of GDP next fiscal year, and maintain it there going forward,” it said.