Global markets party after Congress averts fiscal cliff. U.S. stock futures and European and Asian shares, as well as gold and oil, have all risen (see below) sharply after Congress skidded to a halt at the fiscal cliff but with the front tires hanging over edge, with the House last night joining the Senate in passing the Taxpayer Relief Act. However, says GFT Markets' Fawad Razaqzada, "the excitement will evaporate, because the buildup does not include raising the debt ceiling or longer-term budget cuts."
GOP, Democrats gear up for new battle over debt limit, cuts. Republicans and Democrats are hardening their positions ahead of the upcoming battle over the debt ceiling, which the government hit on Monday but which the Taxpayer Relief Act didn't address. The sides also face a fight over $110B of automatic spending cuts that were delayed for two months. To buy it a couple of months regarding the ceiling, the Treasury is taking special measures.
Taxes to rise for over 75% of households. The fiscal-cliff deal increases taxes on household incomes of over $450K to 39.6%, as well as taxes on capital gains, dividends and inheritances. The hope is to raise $600B in new revenue over 10 years. The payroll tax cut is allowed to lapse, so the employee portion of the Social Security tax will return to 6.2% from 4.2%. All in all, overall taxes will increase for over 75% of households in 2013, says the Tax Policy Center.
Deal seen adding $4T to deficit in 10 years, cutting 2013 growth. The Taxpayer Relief Act will add almost $4T to the deficit over the next ten years, the Congressional Budget Office has calculated, citing the codification of the Bush-era tax cuts for most Americans. Meanwhile, the deal will probably ensure that the U.S. avoids recession but it will also help lower GDP growth to 1% in Q1 2013 from 3.1% Q3 2012, JPMorgan and BofA economists have forecast.
Dairy cliff averted. As expected, the Taxpayer Relief Act extends some farm support schemes for a year and averts the "dairy cliff" by ending fears that the price of milk could double - the measures prevent the revival until September of a decades' old subsidy that would have forced the USDA to buy up milk at prices way above what farmers are receiving now.
For a summary of the fiscal cliff deal and updates on the reaction, see Market Currents' coverage here.
Top Stock News
Macau casino revenues climb 13.5% to $38B. Macau's casino revenues rose 13.5% to $38B in 2012, cementing the status of the Chinese special administrative region as the world's largest gambling hub. However, growth fell from 42% in 2011, due to China's slowing economy and the presence of fewer high rollers amidst a crackdown on corruption. Major Macau operators include Las Vegas Sands (LVS), Wynn Resorts (WYNN) and MGM (MGM), all of which are expanding in the region.
Posco group to buy 15% in ArcelorMittal mine. A consortium that includes South Korean steelmaker Posco (PKX) and Taiwan-listed China Steel (CISEY.OB) has agreed to acquire a 15% stake in iron-ore company ArcelorMittal Mines Canada for $1.1B. China Steel will reportedly invest $540M and Posco $270M, with the South Korean firm looking to bring in other potential investors. ArcelorMittal (MT) will use the money from the sale to help pay off debt.
FDA approvals rise to most in 16 years. The number of drugs that the FDA authorized in 2012 rose to 39 from 30 in 2011 and 21 in 2010, with the figure the highest since 53 in 1996. It also includes 10 medicines with fast-track status. The increase in approvals should help offset the patent cliff, which cost major U.S. and European drug companies $31B in revenues last year. (Graph of approvals)
Avis to buy Zipcar for $500M. Avis Budget (CAR) has agreed to acquire Zipcar (ZIP) in a deal that will value the ride-sharing company at $500M. Avis' $12.25-a-share offer represents a 49% premium over Zipcar's closing price on Monday. Zipcar's shares were +47% premarket.
New-car sales seen growing in 2013. New-vehicle registrations are expected to grow to 15.3M this year, research firm Polk says, with actual sales possibly reaching 15.4M from 14.4M in 2012 as the industry benefits from increased loan and lease access for consumers, and from refreshes in the midsize-car segment. Sales are also expected to top 16M in 2014 for the first time since 2007.
Top Economic & Other News
Eurozone PMI continues to contract. Eurozone manufacturing PMI slipped to 46.1 in December from 46.2 in November as Germany deteriorated but France slightly improved. "The downturn remains widespread, with all nations bar Ireland reporting contractions," says Markit. "The region’s recession therefore looks likely to have deepened, possibly quite significantly, in the final quarter."
In Asia, Japan closed. Hong Kong +2.9% to 23312. China closed. India +0.7% to 19714.
In Europe, at midday, London +2.1%. Paris +2.3%. Frankfurt +2.2%.
Futures at 7:00: Dow +1.3%. S&P +1.6%. Nasdaq +1.6%. Crude +1.3% to $92.92. Gold +0.4% to $1683.60.
Today's economic calendar:
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
8:58 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:00 PM FOMC minutes
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