May 25, 2024

New Year’s gift to the markets


Global markets started 2013 with an upward trend, supported by the postponement of the financial cliff risk in the USA, the better-than-expected Chinese PMI data, and the indicators pointing to the end of the contraction in economic activity in the Euro Zone.

Republicans and Democrats voted in the first hours of the new year to pass the bill, which prevented the United States from falling into the fiscal abyss. Thanks to the bill that will come into effect after it was signed by President Obama, it was decided to continue the tax cuts for individuals with an annual income of less than $ 400,000, while the introduction of cuts in spending was delayed for two months.

The agreement reached at the last minute gave the parties time to negotiate before the borrowing limit that will come out in mid-February and the spending cuts that will come into effect at the beginning of March. But more importantly, we saw that Republicans and Democrats could agree to prevent a possible disaster scenario.

Despite the shocks from Europe and the Middle East and the financial cliff concerns in the USA, the continued global growth was another development that enabled the markets to start the new year with high morale.

Data for December (ISM industry 50.7, nonfarm payroll growth 155,000) showed that the US economy continued to grow at a slow pace, despite being slowed by concerns over the fiscal cliff. Even in Japan (PMI industry 45.0), the worst performing country among developed economies, there is an improvement in future expectations.

The below-expected PMI industry data (46.1) shows that it will take a long time for Europe to emerge from the spiral of high debt, record unemployment and recession. However, after the Central Bank’s attack, the possibility of a new crisis that would deepen the recession in the Eurozone decreased considerably.

The risk perception regarding the European debt crisis continues to improve. Providing additional support for Greece, whose budget deficit exceeded the targets, extending the maturities and reducing the debt interest rates, improved the risk perception and enabled the borrowing costs of Italy and Spain to fall to the 4%-5% band, the lowest level seen after December 2010.

Despite the slowdown in the US and European economies, developing countries continue their relatively strong course. However, the divergence between developing countries seems to be getting more pronounced. December’s PMI figures show that growth started to accelerate in China, India, Korea and Turkey, while growth slowed down in Russia, Hungary, Czechoslovakia and Brazil.

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