European shares flat; US budget deal gets cautious thumbs-up

Thursday, 12 December 2013 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Financial markets gave a cautious thumbs-up on Wednesday to a provisional budget deal that could prevent the US government from shutting down in the coming months. News that US budget negotiators had reached a two-year agreement couldn’t overcome the year-end blues in Asia. It was more warmly received

in Europe, where shares inched higher and the dollar began to firm. For many investors, the deal carried dual significance. It removed a key uncertainty hanging over markets, and it raised expectations that the US Federal Reserve will soon start scaling back its $85 billion-a-month stimulus program. Window of opportunity “It certainly does appear that a window of opportunity could be opening up for the Fed to act next week without a sharp market reaction, said CMC Markets strategist Michael Hewson. “The only question remaining is as to whether they will avail themselves of it.” The to-and-fro of when the Fed will begin to halt the flow of cheap dollars has dominated trading worldwide for months. A recent run of strong data and comments from policymakers have bolstered expectations the process will start soon. Most Asian share markets had lurched lower overnight as investors booked profits on a range of once-crowded positions, but European stocks were holding their own after dropping on Tuesday. The US deal came as euro zone countries also edged closer to agreeing a long-awaited plan to close ailing banks and at least partly sharing the costs involved. In the FX market, the dollar was broadly firmer in reaction to the budget deal in Washington, though it struggled against the yen as a drop in the Nikkei in Tokyo drove up the Japanese currency. Focus in European remained on the strong euro as it sat just off a six-week high versus the dollar at $1.3762 and a five-year high versus the yen hit on Tuesday. Commodity markets In commodity markets, gold came off a three-week high to stand at $1,255 an ounce, though that was still up from last week’s trough of $1,211.44. US crude rose as traders mulled news of progress towards opening a pipeline that will transport oil from storage centres in the US Midwest to refineries in the Gulf. The news presaged a further drawdown in US crude oil inventories for a second straight week and kept NYMEX crude at $98.55 a barrel. At the same time, the prospect of increased supply of Brent crude narrowed the spread between the two oil contracts to a month’s low. Brent crude for January delivery was 5 cents higher at $109.42 a barrel.