Fiscal Cliff Market Relief Fades in Europe
Enthusiasm waned Thursday in Europe over U.S. legislators’ deal to stave off the so-called fiscal cliff, a series of automatic tax increases and spending cuts that could have hurt the world’s largest economy.
While the deal passed by Congress this week avoids the near-term risk of a major blow to businesses and households, it left unsolved several budget measures, mainly government spending cuts. Major indexes fell modestly as investors considered that U.S. politicians now have only two months to negotiate those cuts.
In afternoon trading in Europe, Germany’s DAX shed 0.3 percent to 7,758.71 and France’s CAC-40 lost 0.5 percent to 3,714.87. Britain’s FTSE 100 rose a bare 0.1 percent to 6,035.18. Some broader indexes of European shares rose slightly, boosted by sharp gains in Switzerland. The 18-country STOXX 600 rose 0.3 percent to 286.14.
Wall Street also appeared headed for a lower open Thursday after gains Wednesday. Dow Jones futures were down 0.1 percent to 13,311 while S&P 500 futures lost 0.2 percent to 1,454.10.
A last-minute deal agreed to by U.S. lawmakers late Tuesday triggered a global market rally on Wednesday. But while it settled tax rates, the deal only postponed automatic spending cuts to defense and domestic programs for two months. And it doesn’t include any significant deficit-cutting agreement, meaning the country still doesn’t have a long-term plan on how to curb spending.
Rabobank analyst Jane Foley said that a "more realistic sense" of the situation with U.S. budget affairs "has started to trickle into market sentiment this morning."
"Over the next couple of months, U.S. budget talks are set to remain a threat to risk appetite," Foley wrote in a note to investors.