While you were sleeping Rally on hope for deal

Friday 11th October 2013

Equities rallied on optimism that US lawmakers were finally starting to make headway on an agreement to raise the debt ceiling, even if only temporarily, and avoid a potential default.

House Republicans suggested a plan that would lift the debit limit for six weeks, from the current Oct. 17 deadline. Wall Street surged on hope for progress.

The rate on US$120 billion in bills due Oct. 17 dropped for the first time in six days, falling 10 basis points to 0.39 percent, according to Bloomberg Bond Trader prices

"We are starting to see investor concerns shift attention to November and December bills as they expect the ceiling may be extended by several weeks," Andrew Hollenhorst, fixed-income strategist at Citigroup in New York, told Bloomberg. "Since it's not a done deal, we are still seeing weakness in October bills."

In afternoon trading in New York, the Dow Jones Industrial Average rallied 1.62 percent, while the Standard & Poor's 500 Index advanced 1.61 percent, and the Nasdaq Composite Index jumped 1.94 percent.

"Hopes amongst investors are growing that a thaw is starting to make its presence felt," Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, told Reuters.

Even so, the proof is in the pudding. "We'll believe it when we see it," Wilkinson said.

House Republican leaders were to meet with President Obama later Thursday and he was scheduled to meet with Senate Republicans on Friday.

Amid the political standoff, International Monetary Fund chief Christine Lagarde told Bloomberg TV that failure to reach a compromise in Washington would have "very negative consequences" for the US economy and the rest of the world too.

Nike, UnitedHealth, and American Express paced gains in the Dow, last up 3 percent, 2.9 percent and 2.8 percent respectively. The index's only decliners were Chevron, Merck, and Exxon Mobil, down 0.7 percent, 0.2 percent and 0.1 percent respectively.

The CBOE Volatility index, Wall Street's so-called fear gauge, sank 14.3 percent to 16.80.

The latest economic reports were taken as a positive sign too.

While Labor Department data showed jobless claims rose to the highest level in about six months last week, increasing 66,000 to a seasonally adjusted 374,000, economists were optimistic about the outlook for the labour market.

"As the temporary negative factors unwind, the claims data should remain on a downward trajectory, continuing to suggest a gradually improving picture on the layoff side of the labor market equation," Gennadiy Goldberg, an economist at TD Securities in New York, told Reuters.

In Europe, the Stoxx 600 Index climbed 1.7 percent. The UK's FTSE 100 increased 1.5 percent, Germany's DAX rose 2 percent and France's CAC 40 gained 2.2 percent.

BusinessDesk.co.nz

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