World Week Ahead: Can Santa bring budget deal?
By Margreet Dietz
Dec 24 (BusinessDesk) – The focus on this holiday-shortened week on both sides of the Atlantic will remain keenly on the
attempts to reach a US budget deal after talks ground to a halt.
There is just one week left to find a compromise acceptable to both Democrats and Republicans and prevent US$600 billion
of tax increases and spending cuts that would probably tip the world's largest economy into recession in 2013.
Still, optimism remains that President Barack Obama and House Speaker John Boehner will succeed.
"The markets still basically believe that something will be done," Sandy Lincoln, chief market strategist at BMO Asset
Management US in Chicago, told Reuters.
Obama, too, believes something can still be done.
A plan can be achieved “whether it happens all at once or whether it happens in several different steps,” the president
said at the White House on Friday, according to Bloomberg News. “Call me a hopeless optimist, but I actually still think
we can get it done.”
After Boehner's failure to convince his own Republican colleagues to support a tax increase on individuals earning more
than US$1 million, Obama said Congress should move forward on a narrower agreement that at least holds tax rates steady
for 98 per cent of Americans, leaving the most politically divisive issues to be debated in the New Year.
US Treasuries received a boost on Friday, however, from the increased suspense.
“There may be a last-minute deal, but there has been a notable increase in risk in the markets,” Adrian Miller, director
of fixed-income strategies in New York at GMP Securities, told Bloomberg.
The House and Senate are on break until Thursday, perhaps giving both Democrats and Republicans time to rethink their
positions.
Data released this week will offer fresh clues on the American housing market, which has shown promising signs of a
sustained recovery, through the S Case-Schiller Home Price Index on Wednesday, New Home Sales on Thursday, and the Pending Home Sales Index on Friday.
Other reports due in the coming days include Consumer Confidence on Thursday and Chicago PMI on Friday.
Trading volume on Wall Street is expected to be low this holiday-shortened week. Markets close early on Monday and are
closed on Tuesday for Christmas Day.
"I'm guessing it's going to be a low volume week. There's not a whole lot other than the fiscal cliff that is going to
continue to take the headlines," Joe Bell, senior equity analyst at Schaeffer's Investment Research, in Cincinnati, told
Reuters.
In the past five days, the Dow Jones Industrial Average gained 4 percent, the Standard & Poor's 500 Index rose 1.2 percent and the Nasdaq Composite Index climbed 1.7 percent.
Last week, the benchmark Stoxx Europe 600 Index gained 0.6 percent. Mario Monti, who resigned as Italian prime minister
on Friday after parliament approved his government's budget for next year, is expected to clarify his future plans as
early as Sunday. After initially saying he wouldn't run for office, Monti more recently appears to have been in campaign
mode. EU leaders are keen for Monti -- or at least the reforms he's initiated -- to remain firmly in place.
Meanwhile, the Japanese yen extended its weakness against the greenback, dropping 0.9 percent for the week to 84.24 yen
per US dollar, as the newly-elected Shinzo Abe and his Liberal Democratic Party raised the spectre of further monetary
easing.
"We are eventually heading toward 100 in [US] dollar-yen and maybe the other side of it -- that’s how significant this
sea change in Japan is,” Andrew Wilkinson, chief economic strategist at Miller Tabak in New York, told Bloomberg.
“People will still believe that something has to give with the fiscal-cliff debate. I am still banking on strong US
growth next year.”
(BusinessDesk)