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Investors Optimistic on Fiscal Cliff Resolution and Greece Debt Deal Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue Nov 20 12 00:42 ET

Market sentiment improved significantly amid optimism on a potential resolution of the US fiscal cliff and conclusion of Greece's bailout. Wall Street gained with the DJIA and the S&P 500 indices rising +1.65% and +2.21% respectively. In the commodity sector, the front-month contract for WTI crude oil jumped to a 1-month high of 89.98 before settling at 89.28, up +2.72% while the equivalent Brent crude contract soared +2.52% during the day. The Comex gold benchmark contract rose for the first time in three days, up +1.15% at close. Escalated tensions between Israel and Palestine sent oil and gold prices higher.

Investors were delighted as policymakers signaled there's good progress in negotiation on the resolution to deal with the fiscal cliff problem in the US. Yet, we believed the optimistic trade was overdone as Congressional leaders have yet to devise a concrete plan regarding the issue and the markets were merely bid up by constructive comments made by policymakers. President Barack Obama stressed that he's “confident we can get our fiscal situation dealt with” while House Speaker John Boehner (Republican) said that “to show our seriousness we put revenue on the table as long as it's accompanied by significant spending cuts”. Meanwhile, encouraging housing data also lifted sentiment. Existing homes sales unexpectedly rose +0.84% to 4.79M in October while the NAHB housing market index climbed +5 points to 46 in November.

In the Eurozone, finance ministers are meeting in Paris today to discuss the Greek fiscal issue ahead of the troika meeting tomorrow. Bloomberg reported that “lengthening maturities on Greek debt and lowering rates on the country's bailout loans are the main options being discussed”. Ahead of the meeting, the Greek government approved laws to enforce automatic spending cuts or tax hike in case fiscal targets are missed are by more than 10% for 2 consecutive quarters. The policy is viewed as an “appeasement” of its creditors. Government spokesman Simos Kedikoglou the move aimed at “fulfilling the final pledges” to investors. Regarding the meeting today, German finance minister Wolfgang Schaeuble did not expect any final decision would be made. However, there have been rumors that a tentative approval of 44B euro would be made with the final approval on November and disbursement on December 5.

The Bank of Japan ended the policy meeting today with an unanimous decision to leave to interest rates and asset purchases unchanged in November, following expansion of the size of the asset buying program in September and October. It's likely that further stimulus will be announced in December.

 

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