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Markets slip back as concerns of fiscal cliff weigh on sentiment

Article By: ,  Senior Market Analyst
December 13, 2012 11:50 AM

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%.

 

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