Fiscal Accord Results in Big Rally

By Minyanville Staff  JAN 02, 2013 5:30 PM

Today's financial recap and tomorrow's financial outlook.


MINYANVILLE ORIGINAL Early trading was highlighted by the successful conclusion of part of the fiscal budget deal. Tax cuts on individuals earning more than $400,000 per year will be repealed, dividend and capital gains taxes will increase from a flat rate of 15% to 20%, and spending cuts will be put on hold until March. The 2% payroll tax cut expired at the end of the year without any change. The debt ceiling was yet unresolved, leaving the Treasury department to resort to "extraordinary measures" to pay the US's bills, but policymakers were encouraged by the potential for another deal to be reached. The overall net change in US growth was negative $165 billion, or a decline in annual growth of 1.4%.

US equity futures rocketed higher after opening for trading at 6:00 a.m. EST. However, throughout the day, the S&P cash index remained in a tight 7.25 point range until the closing hour when the rally intensified and climbed an additional 10 points. Over the past two days, the S&P 500 has gained 4.60% while there has been a collapse in equity options, as represented by the VIX.

Economic data in the US saw an expected rise in the ISM manufacturing index. The monthly index showed an increase to 50.7 from last month's 49.5, which was a bit better than the 50.5 expected. The gain was driven by a notable increase in the employment index, but new orders were little changed.

Treasuries continued to sell off, fed by speculation that Fitch may downgrade the US to AA from AAA since only a partial deal on the fiscal cliff was reached. Moody's reaffirmed its negative outlook for the US, citing the lack of meaningful improvement in the US's debt ratios. The 10-year Treasury yield climbed to 1.84%, eight basis points higher for the day.

Car-sharing company Zipcar (NASDAQ:ZIP) was purchased by Avis Budget Group (NASDAQ:CAR) today for $12.25 per share or about $491 million. The purchase reflected a 49% premium over Zipcar's 2012 closing price.

Tomorrow's Financial Outlook

Jobs week will officially kick off tomorrow morning with scheduled layoffs in the form of Challenger Job Cuts, private payrolls from the ADP, and weekly initial jobless claims. Last month, Challenger Job Cuts saw an annual increase of 34.4%. The ADP report is expected to show a monthly gain of 140,000 jobs, up from last month's increase of 118,000. The weekly initial jobless claims is expected to rise to 360,000 from last month's 350,000. The four-week average currently stands at 356,800.

Globally, China will keep up its string of economic data by releasing its non-manufacturing PMI early in the morning. In Europe, Germany will release employment figures for the month of December. Its unemployment rate is forecast to stay unchanged at 6.9%.

In earnings, Family Dollar (FDO), Worthington (WOR), A. Schulman (SHLM), and Sonic (SONC) will report.

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