US stocks rose, as investors weighed prospects for a budget deal in Washington. President Barack Obama is considering a possible budget concession on Social Security cost-of-living increases after House Speaker John Boehner dropped opposition to raising tax rates for the wealthiest.
In a quiet day for European data, stock markets in Europe opened mostly lower on Monday as ongoing concerns around the US fiscal cliff dampened investor sentiment. Despite some signs of flexibility from Republican leader John Boehner, time is running low for Congress to agree a deal to avert the fiscal cliff before the end of year deadline. Stocks recovered later in the day, and overall the Euro Stoxx 50 index ended little changed.
UK CPI inflation likely rose in October due to the increase in the cap on undergraduate tuition fees. This was partly offset by falling petrol prices, although this will become less of a factor as oil prices have stopped falling. Inflation is expected to remain sticky in the next few months due to an increase in gas and electricity bills as well as higher food prices.
Asia Pacific Market
Asian stock markets outside Japan and China fell on Monday, taking cues from US markets which closed lower last Friday amid ongoing worries over the looming ‘fiscal cliff.’ Japanese stocks gained, as the yen fell against most of its major counterparts after Shinzo Abe’s Liberal Democratic Party regained power, giving him a mandate to act on pledges of expanding monetary stimulus.
Chinese stocks gained as government plan to boost urbanization and consumer demand spurred gains in commodity producers and consumer stocks. Technology shares also gained.
Indian stocks dropped for the sixth time in seven days as the Ministry of Finance cut its growth forecast for this year from between 5.7% to 5.9% in the year through to March, less than an earlier estimate of as much as 7.85%. What’s more, with
inflation still high, the RBI is not expected to cut policy rates at its meeting today.
In India, despite slower growth, the supply-side constraint is keeping capacity tight and inflation firm. Therefore the RBI is expected to keep the repo rate unchanged at 8.0% until inflation risks recede and more traction on fiscal consolidation and structural reform is assured. However the RBI may cut the cash reserve ratio by 25bp to 4.00% to ease liquidity pressures.
Russian stocks gained yesterday on the back of fairly resilient commodity-related stocks. Oil and gas stocks were up 0.2% and basic materials up 1.5%.
In Brazil, stocks erased all their earlier gains in the last 30 minutes of the session, having been dragged down by the oil and gas sector (-2.4%). Investors are still testing the 60,000 resistance and this should continue in the coming days.
Despite the early weakness in European equity markets, safe haven European bond market yields moved modestly higher.
However, the increase in yields was small, German and French 10 year bond yields inched up 2bp, and UK 10 year bond yields were up just 3bp.
US Treasury prices extended losses on Monday, as signs of progress by US lawmakers in addressing tax increases and spending cuts supported sentiment for riskier assets. The Treasury sold USD35bn of two-year debt with lower-than-average demand. The offering’s bid-to-cover ratio fell to 3.59, the lowest since February, after a record high of 4.07 last month. The benchmark 10-year yield ended 7bp up at 1.77%, the highest closing yield in seven weeks. The 5-year and 30-year yield also rose 4bp and 9bp, respectively, to 0.73% and 2.95%. The Treasury will auction USD35bn in five-year debt today in the second of four note sales this week totaling USD113bn.