Fiscal cliff hopes lift Asian shares, other risk assets

Reuters: Asian shares and other risk assets rose on Tuesday as signs of compromise sparked new optimism that the US ‘fiscal cliff’ budget tussle could be settled before tax hikes and spending cuts begin to bite early next year.

Differences over how to resolve the fiscal cliff narrowed significantly Monday night as President Barack Obama made a counter-offer to Republicans that included a major change in position on tax hikes for the wealthy, according to a source familiar with the talks.

The move, which the source stressed was not Obama’s final offer, was welcomed by a spokesman for Republican House of Representatives Speaker John Boehner, potentially advancing negotiations towards a deal by the end-year deadline.

Oil, copper and gold also firmed on the prospect of progress in the US budget talks, which reduced worries about economic damage, but expectations of more monetary easing in Japan kept the yen soft.

“The market will view any advance in talks as positive for confidence, which has been battered by the daily flow of political fighting,” sales trader at CMC Markets Ben Taylor said in a report.

“Regardless of what is decided, the market is looking for a decision and any compromise will help provide a clearer picture for the future.”

European shares were expected to keep up the positive momentum, with financial spread betters predicting London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX will open as much as 0.5% higher. A 0.3% gain in US stock futures suggested a higher Wall Street opening.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2%, following a rise in global shares on Monday. The index snapped an eight-day winning streak on Monday as investors took profits from last week’s rally. Regional equities also took direction from local factors.

Australian shares gained 0.5% to a 17-month high, with resource stocks elevated by a rise in iron ore prices to a five-month high.

“Iron ore is a very key commodity in the Chinese industrial machine, steel usage will bounce back and that is good news for our exporters,” said Richard Morrow Director Baillieu Holst.

Seoul shares rose marginally but underperformed some others in Asia, as investors were reluctant to build positions ahead of South Korea’s presidential vote on Wednesday. London copper was up 0.3% to US$ 8,085 a metric ton.

“Before the end of the year, I don’t really see huge selling pressure, with improving data from China and expectations for a resolution to the fiscal cliff,” said analyst Bonnie Liu of Macquarie.

United States crude surged 0.8% to US$ 87.85 a barrel and Brent rose 0.7% to US$ 108.41.

Spot gold added 0.3% to US$ 1,702.01 an ounce.



Solid performance in stocks boosted Asian credit markets, narrowing the spreads on the iTraxx Asia ex-Japan investment-grade index by two basis points.

In Japan, the Nikkei average closed up 1.0% at an 8-1/2-month high and edged closer to the key 10,000-mark, with sentiment bolstered by a landslide election win for the conservative Liberal Democratic Party on Sunday. LDP leader Shinzo Abe, due to be confirmed as Japan’s premier on 26 December is calling for far more aggressive monetary stimulus and huge public works spending to rescue Japan from decades-long deflation. His pledges are seen as pressuring the yen and supporting Japanese stocks by improving earnings for the country’s exporters.