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US markets jump on upbeat data and hopes on budget deal

20 Nov 2012 Evaluate

The US markets jumped on Monday, notching their best session in more than two months, on upbeat housing data and increasing confidence that a US budget deal would be reached. Yesterday’s session had all three indexes gaining the most since September 06, when the market rallied on European Central Bank President Mario Draghi’s plan to rescue the euro. President Barack Obama spoke at a news conference in Bangkok, Thailand, at the start of a three-nation Asian trip, and expressed confidence that the United States would get its fiscal situation dealt with. Besides, investors were also encouraged after both Democrats and Republicans emerged from the meeting with a confident tone and suggested that agreement could be reached before January 01, when federal spending cuts and tax increases are scheduled to take effect.

On the economy front, the Home-builder sentiment climbed in November for the seventh straight month to the highest level in more than six years, according to data released that shows the continued improvement in the housing market. The National Association of Home Builders/Wells Fargo housing market index rose 5 points to a seasonally adjusted level of 46, the highest point since May 2006. Separately, sales of existing homes rose in October with gains in three of four regions as activity continues to bounce off post-recession lows, the National Association of Realtors reported. Existing-home sales rose 2.1% in October to a seasonally adjusted annual rate of 4.79 million from a downwardly revised rate of 4.69 million in September.

In Europe, the severe austerity measures have impacted Greece, Spain, and Portugal in particular barring Ireland which has stabilized and there are positive signs in Italy, though core euro-zone countries, such as France and even Germany, are now affected. Both France and Germany are likely to report a decline in GDP this quarter. The negative impact of fiscal multipliers suggests that further cuts in spending and/or tax increases will reduce GDP by more than the aggregate of tax increases and spending cuts, thereby increasing budget deficits and debt-to-GDP for Greece, Portugal and Spain. Besides, Moody's Investors Service lowered France’s sovereign rating by one notch to Aa1, stripping the country of its coveted triple-A rating. The ratings agency also expressed concern over France's uncertain fiscal outlook and noted that its resilience to future euro-shock is becoming more difficult to predict. The rating outlook remains negative.

The Dow Jones Industrial Average gained 207.65 points, or 1.65 percent, to close at 12,796.00, the S&P 500 finished up by 27.01 points, or 1.99 percent at 1,386.89, while the Nasdaq ended higher by 62.94 points, or 2.21 percent to settle at 2,916.07.

Indian ADRs closed in green on Monday, HDFC Bank was up 1.14%, Infosys was up 0.72%, ICICI Bank was up 0.54%, Tata Motors was up 0.42% and Dr. Reddy’s Lab was up 0.36%.

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