World stock, commodity and currency markets were steady on Monday, with tensions over the U.S. budget dispute subdued by a holiday lull in Europe.
With a number of stock markets including in Germany, Italy and Switzerland closed for the Christmas holiday, the FTSEurofirst300 was flat at 1,138.92 points by 1045 GMT and the MSCI index of global stocks was virtually unchanged at 339.97. The British, French, Dutch and Spanish markets were open for shortened sessions only.
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Activity in other assets was also subdued, with spot gold edging up from a four-month low and Brent oil easing back under $109 a barrel.
Markets were left in limbo on Friday when President Barack Obama and U.S. lawmakers suspended talks until after Christmas on avoiding $600 billion of spending cuts and tax increases that threaten to send the economy back into recession.
Although there is no official date for talks to resume, the two sides still have few days after Christmas to find a compromise before the Jan. 1 deadline when the measures start to take effect.
Most political experts and economists expect a deal of some form. If one isn't, the "fiscal cliff" could wipe as much as 4 percent off U.S. GDP next year, choking the global recovery before it gets going.
"The fiscal cliff is the only thing that is important for markets at the moment," said ABN Amro economist Aline Schuiling. "We were hoping the festive spirit would get everyone together and a deal would be done, but Obama has now gone to Hawaii for Christmas, so it looks like we'll have to wait."
Most European bond markets were already shut for Christmas but one of the few to be open was in Britain where benchmark 10-year yields ticked higher.
Currency markets were also largely quiet. Against the backdrop of the fiscal cliff uncertainty, the dollar eased 0.2 percent versus a basket of major currencies while the euro climbed back above $1.32.
The major mover was the yen, which neared a 20-month low versus the dollar, after incoming premier Shinzo Abe renewed pressure over the weekend on the Bank of Japan to adopt a 2 percent inflation target.
The dollar was up 0.2 percent on the day at 84.42 yen . Chartists said the dollar needed to overcome 85.05 yen, its 200-week moving average, for it to make further gains.
"There has been some pretty significant yen selling all through the night and into this morning," said Peter Kinsella, currency strategist at Commerzbank.
"It is very noticeable we have not seen any retracement or dip in dollar/yen at all. The market is really saying they are convinced on yen weakness, and that is what we are going to see for the remainder of this year and in the course of next year."
Trading on Wall Street was also expected to be subdued when it opens later, also for half a day. Futures pointed to the S&P 500 opening down 0.6 percent and the Dow Jones and Nasdaq 100 starting down 0.4 percent.
The uncertainty over the U.S. budget is threatening to sour what has been a strong second half of the year for equity markets. The FTSEurofirst 300 is up 20 percent since June while the Euro STOXX 50 has gained almost 30 percent. Both indexes are set to post their best annual performances since the post-Lehman crisis bounce of 2009.
Investors are now showing increasing appetite for European stocks. EPFR Global data reported that flows into equity funds have increased for the last 19 weeks.
"This year has been a year of transition, and now it's time to turn the page and move on, to start picking stocks again for the long term, companies exposed to the emerging consumer in places like Asia and Africa," said David Thebault, head of quantitative sales trading, at Global Equities.
Others warn that the euro zone crisis may still have some bite left, however. Elections are due next year in Italy and Germany, while Spain's government, companies and banks need to refinance huge amounts of debt.
"Policymakers in Spain will not be looking forward to the start of the year and January will probably be quite volatile in Europe," said ABN Amro's Schuiling. "The funding in the first quarter for Spain will be the test... Its deficit is now roughly the same as Greece's."
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