Markets slip back as concerns of “fiscal cliff” weigh on sentiment

<p>European markets slipped back in early trading on Thursday and the FTSE pulled back from its 9 month high as investors digested comments from the […]</p>

European markets slipped back in early trading on Thursday and the FTSE pulled back from its 9 month high as investors digested comments from the US Federal Reserve and news about a new European Banking Union.

The Federal Reserve announced another fresh round of stimulus for the US economy, saying it would add a further $45 billion Treasury note purchases to its $40 billion per month purchases of mortgage backed bonds, to keep the recovery going whilst the labour market remained weak. Bernanke also indicated that interest rates would remain close to zero until employment falls to 6.5%.

However any positivity from this news has quickly been overshadowed by the looming deadline of the fiscal cliff which is weighing on the market. Bernanke acknowledged that monetary policy would not be able to offset the damage should the talks fail, which highlights the importance of a consensus being reached between the Republicans and Democrats. With few other factors entering the equation for the markets in December from now until the end of the year, the fiscal cliff talks will be the main focus.

Over this side of the Atlantic, the EU finance ministers meeting yesterday successfully reached a landmark deal to make the ECB the Eurozones banking supervisor. Yesterday it seemed like an impossible mission however a consensus was finally reached after marathon talks that lasted well into the early hours of this morning. EU leaders will give their stamp of approval at a summit starting later today, which is the last of 2012.

However this is only the start of a difficult road of political and financial negotiation to achieve a banking union. All in a year which could see Silvio Berlusconi put himself forward for re election, a possibility of a bailout of Spain and a German General election, not to mention Greece, Ireland or Portugal all remaining in fragile economic territory.

Here in the UK shares in Tullow Oil reversed its recent downward path by gaining over 2% as Goldman Sachs lifted them from neutral to buy. On the downside energy stocks put pressure on the index giving back most of the previous session gains. BG Group a noticeable looser shedding over 1.6%.

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.