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Categorized | Capital Markets, Currencies

Global stocks near 17-month highs

Posted on December 19, 2012

Wednesday 10.40 GMT. Global stocks are trading near 17-month highs as optimism builds that Washington will reach a deal in US budget talks, while in Japan the Nikkei topped 10,000 for the first time since April on expectations of aggressive monetary easing.

The FTSE All-World equity index is up 0.5 per cent to 226, its loftiest level since July 2011, after the Asia-Pacific region added 1.1 per cent and as the FTSE Eurofirst 300 continues its good run of form. The Europe-wide barometer is gaining 0.5 per cent as Germany’s Dax index flirts with five-year highs.

    Futures action suggests Wall Street’s S&P 500 will hold its overnight close of 1,447, leaving the US benchmark less than 20 points below its highest mark in more than four years.

    Support for New York stocks may come from some well-received results from Oracle, which arrived after Tuesday’s closing bell. The technology giant said it remained positive on IT spending and also addressed the topic that continues to be the market’s main focus: the US fiscal cliff.

    The California-based software group suggested it had not really sensed any shift in behaviour from its customers because of the impending fiscal cliff. However, this sanguine view runs counter to recent evidence of failing confidence among both households and corporations.

    Analysts and many investors have for several weeks been professing a fear that the fiscal cliff’s $600bn worth of automatic spending cuts and tax hikes slated to take effect next year, would likely push the US economy into recession.

    And yet it seems clear from the trundle higher in many so-called risk assets that many were still betting that the worst case scenario – no deal and economic dislocation – would be averted.

    The latest progress in Washington, though still pitted by partisan rhetorical salvos, led may traders to believe the chances of some sort of deal remain quite high.

    Bears will moan that such confidence leaves the market highly sensitive to disappointment. But for now the bulls appear to be in charge and enjoying a traditional seasonal burst of optimism.

    Helping the bullish cause is the continuing reduction of eurozone sovereign debt tensions. Italian and Spanish borrowing costs sit near multi-month lows and the euro is up 0.3 per cent to $1.3273, near an eight-month high. The currency is also benefiting from news that the Ifo index of German business sentiment rose again in December.

    The improvement in the mood even extends to Standard & Poor’s, with the rating agency raising its assessment of Greece’s sovereign debt by several notches, citing the eurozone’s “strong determination” to keep the country inside the common currency area.

    A currency going in the other direction of late is the yen – though this is not considered a negative sign to buyers of Japanese assets.

    The yen is down 0.3 per cent versus the dollar to Y84.42 after Japan reported its fifth straight trade deficit in November. But the data are only seen heightening pressure on the Bank of Japan to introduce more stimulus to boost the slowing economy.

    And this reasoning is continuing to light a fire under the Japanese stock market. The Nikkei 225 Stock Average rose another 2.4 per cent as exporters continued to benefit from the yen’s weakness.

    The Nikkei has now surged 17.3 per cent in just five weeks and this corresponds with a move out of Japanese government bonds. Yields on the 10-year JGB are 0.79 per cent, a two-month high.

    Similar trends can be seen in other perceived bond havens. The yield on the US 10-year note is down 1 basis point on Wednesday, but at 1.81 per cent it sits near the top of a 30 basis point range of 1.55-1.85 per cent that has held since the start of August.

    A $35bn auction of new five-year paper by the US Treasury on Tuesday saw relatively lacklustre demand and investors will be interested to see how Wednesday’s $29bn seven-year sale proceeds.

    In commodities markets, higher risk appetite has been underpinning prices but Wednesday’s gains are patchy. Brent crude is up 79 cents to $109.63 a barrel and copper is adding just 0.1 per cent to $3.64 a pound.

    Gold is recovering slightly, up $4 to $1,670 an ounce, after falling sharply to three-month lows in the previous session. Bullion is being helped by a 0.3 per cent dip for the dollar index.

    Additional reporting by Song Jung-a in Seoul and Stephen Foley in New York