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Fiscal Cliff Resolution Creeps Closer


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

It was a light session today on New Year's Eve, but fiscal budget headlines dominated the action. Late on Friday, US equity futures continued to plunge during the after hours session, leading to a 13 point difference versus the S&P cash index. In the morning, congressional sources began leaking that Congress had made significant progress on the deal. Eventually, during President Obama's afternoon press conference, this led to a continued rally of over 1% for S&P 500 stocks.

The basis of the deal was an increase in income tax and tax on investment income for individuals earning over $400,000 and households earning over $450,000. However, no concrete deal had been agreed upon by the close of equity trading. Late in the day, Senate Minority Leader McConnell said that an agreement had been reached regarding the tax issues for the budget deal, but sequestration (spending) cuts were still a flashpoint.

Fixed income trading closed early, but weakness in Treasuries, coinciding with equity strength, was the trade for the day. The Treasury curve steepened as the 30-year bond fell over 1 point to a yield of 2.95% while the two- and three-year yields stayed flat. Precious metals and energy also rallied with equities, each gaining over 1%.

Tomorrow's Financial Outlook

US and European equity markets will be closed tomorrow for New Year's Day and will reopen again on Wednesday. On Wednesday, the ISM will release its manufacturing index and vehicle sales will be released in the afternoon. In Europe on Wednesday, the eurozone and the UK will release manufacturing PMI indexes.

Twitter: @Minyanville

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