Monday, July 25, 2011

Stock Market

Gold and the Swiss franc appeared the only winners Monday, as Washington's ongoing impasse over the U.S. debt ceiling continued to depress markets.
At midday, stock markets in the U.S., Asia and Europe were all down -- the S&P 500 by 0.47 percent, the Nikkei by 0.81 percent. Gold, however, rose 0.81 percent, and futures for the precious metal hit a new record of $1,624.30 an ounce. And the Swiss franc gained 2.1 percent against the dollar.
U.S. Treasuries showed surprising resiliency, with the yield on 10-year Treasuries rising to 2.98 percent. Some observers took that as a sign that fears of financial catastrophe had been exaggerated. Guy Lebas, a fixed income strategist at Janney Montgomery Scott in Philadelphia, told Bloomberg he'd expect to see a bigger move if something "truly catastrophic" was on the horizon.
Meantime, a gridlocked U.S. capitol entered its last full week of negotiations before the Aug. 2 deadline for raising the nation's debt ceiling. Earlier in the day, Secretary of State Hillary Clinton, in Hong Kong, sought to reassure Asian nations of the U.S. economy's health, reminding them that the country has recovered from such instability in the past. Clinton predicted that a debt ceiling deal would be reached before the Aug. 2 deadline to avoid an unprecedented default.
It is feared that if an agreement is not reached, the United States could lose its triple-A credit rating.
"The political wrangling in Washington is intense right now," Clinton said. "But these kinds of debates have been a constant in our political life throughout the history of our republic. And sometimes, they are messy.
"I am confident that Congress will do the right thing and secure a deal on the debt ceiling, and work with President Obama to take the steps necessary to improve our long-term fiscal outlook."
Both parties intensified their efforts Monday to break the deadlock.
Democrats are currently ironing out a deal that would have $2.7 trillion in cuts over the next 10 years, no tax increases and a debt ceiling increase (of $2.4 billion) that would last until 2013.
And House Speaker John Boehner is reportedly ready to post online later today a new variant of the Republicans' two-step plan.
The Republican plan would see $1.2 trillion in cuts now, and a debt ceiling increase of about $1 trillion, or enough to last until February 2012. For the second step, a bipartisan committee would be created to identify another $1.8 trillion in cuts. After these cuts are approved, the debt ceiling would then be extended until 2013.
Ongoing bipartisan talks over the debt ceiling broke down over the weekend. Senate Majority Leader Harry Reid stated in a letter Sunday that the talks ended "over Republicans' continued insistence on a short-term raise of the debt ceiling."
A senior GOP aide close to the failed bipartisan negotiations said Sunday that Boehner, Reid and Senate Minority Leader Mitchell McConnell all agreed on the general framework of a two-part plan, but according to the aide President Obama said he would not agree to it, because it would force another vote on the issue.

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