Wall Street feel when President Barack Obama confronted Republicans, to allow a tax increase on the wealthy as a plan to avoid the fiscal cliff that is looming at the end of the year. The market started off on the upside, but with the aid of Cisco System’s healthy earnings, prices dropped and then quickly plunged after President Obama made clear his terms on the deal in his first television appearance since he was re-elected.
Exchanges end up closing at the lowest point in the past 4 months, after Obama pressed Republicans hard in an attempt to find a compromise to avert the automatic tax increases and spending cuts that will take place in January. The Dow Jones tumbled 185.23 points, or 1.45 per cent, to 12,570.95, its lowest close since June 26.
European exchanges closed the day with huge losses, this comes with the concerns in Greece and the coordinated strike in Southern Europe as a backdrop. EU Commissioner Olli Rehn, said that Spain will need to carry out further economic reforms in 2013 to try to balance their budget.
This morning Asia traded much lower, because of the concerns with the US economy, which has curbed investors’ confidence. However, Japanese shares have bucked the trend, thanks to a drop in the JPY. Japan’s Nikkei gained 0.8%, but South Korea’s Kospi fell 1.7%, and Australia’s S&P/ASX 200 index retreated 1.1%. Hong Kong’s Hang Seng dropped 1%, while the Shanghai Composite Index lost 0.6% ahead of the announcement of China’s new Communist Party leaders due later in the day. The losses that happened outside of Japan followed a quick drop in the US stock market yesterday right after Obama stated what he needs from Republicans on tax cuts.
The euro rose up against the USD. The market stayed pretty calm despite new tensions that have escalated in the Middle East after Israel and Gaza have been exchanging missiles.
The euro jumped quickly when the Federal Reserve released that the last policy meeting showed it was prepared to expand bond purchases by the 2013 in order to hold interest rates down. It ended up falling back to end the day with only modest gains against the greenback.
The Sterling and Euro rose up as a tandem during the first few hours of the trading session, followed up by the IMF chief’s statement about Greece. Mrs. Lagarde believed that she had expected a real fix and just a quick fix to the Greek economic crisis. She wants to create a sustainable debt level in Greece and the sooner the better.
The comments about the confidence level about Greece’s debt has helped ease some of the worries that had sent the Euro 30 points higher and about 1.2750 against the dollar.
The comments also sent Sterling up to 1.5900 despite some worse than expected employment numbers, as the Euro crisis also affects the UK economy.
The dollar was able to firmly rise over 80 yen during the night, with speculation that the
nation is near an election that could send opposition leader Shinzo Abe, a monetary dove, to be
the next Prime Minister of Japan. Also, the euro rose to trade higher near the ¥102 level.
GOLD dropped while oil pared gains and share prices fell. The conflict in the Middle East and concerns about the US fiscal cliff could incite purchases from investors which would boost the metal’s safe haven, appeal in times of uncertainty.
The fiscal cliff can be better explained as a combination of both spending cuts by the government and a rise in taxes that will go into effect at the beginning of 2013, unless the US Congress can act. These are supposed to help reduce the overall US budget deficit but it also might send the economy into an even greater recession.
CRUDE OIL gained 7 cents to US$85.45, breaking its past two days of losses. Inventories Crude oil was seen to be up to 1.9 million barrels, this information comes from the Federal Energy Information Adm. The report was delayed because of the public holiday on Monday. There is even more decline in prices that had been capped by concerns of supply disruption coming from the Middle East.