Global markets surged this morning after Congress passed a last-minute bipartisan deal to avoid the fiscal cliff of austerity measures.
The House of Representatives passed the Taxpayer Relief Act with a majority of Republicans and 16 Democrats voting against it.
But withhold that sigh of relief. The interminable partisan wrangling over fiscal policy is not over yet. The automatic spending cuts that would have probably caused another US recession are delayed, but only for two months. The statutory debt ceiling was left out of the deal. The only reason that the US has not been declared insolvent is thanks to the Treasury's special measures to keep the country's finances flowing without issuing new debt.
The Congressional Budget Office estimates that the deal actually increases the national debt by $4 trillion over 10 years, since there are no spending cuts in the bill.
Americans will find little to cheer about in the bill. The Tax Policy Center estimates that three-quarters of households will see their taxes rise. The deal let the top tax rate on individual incomes of $400,000 and households making $50,000 rise from 35% to 39.6%. The extremely popular payroll tax holiday that began in 2010 also ended. The tax, which 160 million workers pay, will return to 6.2% from 4.2%. Estate taxes will increase to 40% from 35% on eligible estates. Some analysts are predicting that the deal could potentially result in a year-over-year one percentage point decrease in GDP in 2013.
Asian and European equities extended gains overnight as the news of the compromise hit the wires. This morning, US stock index futures are surging. Dow
(INDEXDJX:.DJI) futures were up 1.53% at 13,226. Futures contracts on the S&P 500
(INDEXSP:.INX) rose 1.83% to 1,446.30, and Nasdaq
(INDEXNASDAQ:.IXIC) futures gained 2.03% to 2,709.50.
At 10:00 a.m. today, the Institute for Supply Management's manufacturing index will report that US industrial firms expanded their activity last month, according to economists' estimates. The index swung from a contraction of 49.5 to an expansion of 50.5. (Readings above the 50-point threshold indicate that employment, production, new orders, deliveries, and inventories at the 300 firms surveyed improved over the course of the month.) A separate report on construction spending is expected to show that new building activity increased by 0.6% in November, after gaining 1.4% in October.
The major car companies will report auto sales figures today. Car and light truck sales probably saw the biggest sales streak since 1973 in December. Forestalled demand due to Superstorm Sandy probably pushed sales up to an annual gain of 9.6% last month. General Motors
(NYSE:GM) is expected to show sales increases of 2%, while Ford
(NYSE:F), a close second to GM, is likely to report a 1.2% increase. Chrysler, currently owned by Fiat S.p.A.
(PINK:FIATY), probably grew sales by 7.7%. Volkswagen
(PINK:VLKAY) probably saw a 31% increase, and Toyota
(NYSE:TM) boosted sales by 10%.
Eurozone manufacturing PMI showed another month of contraction in December. The index fell to 46.1 from 46.2 in November.
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