Stock markets around the world began the year with gains Wednesday, as investors took some relief from the last-minute fiscal deal reached in Washington but wrestled with the lingering uncertainties about many other aspects of the U.S. budget.
In Asia, markets gained after a crucial vote in Washington passed a compromise deal that staved off income tax increases for most Americans, although two important markets, Japan and China, remained closed for holidays.
European stock markets rose more than 2 percent, and futures for the Dow Jones industrial average, which indicate the direction of New York’s market opening, soared.
The Hang Seng index in Hong Kong had the biggest increase, closing up 2.9 percent at its highest level since June 2011. In South Korea, the Kospi rose 1.7 percent, while the benchmark indexes in Singapore, Australia and Taiwan climbed more than 1 percent.
Analysts have long cautioned that the economic and budget travails of the United States and Europe were likely to overshadow global market sentiment and could cast a pall over Asia this year, especially in highly trade-dependent countries like Taiwan and South Korea and small, open economies like Singapore and Hong Kong.
The deal reached in Washington on Tuesday averted looming income tax increases for most Americans. Combined with significant spending cuts, these would have dealt a major blow to an economy that has been growing anemically since the global financial crisis.
Market relief, however, was likely to be short-lived, analysts said, as other important issues have not been tackled. In particular, decisions on spending cuts of $110 billion were delayed for two months, and politicians have not come up with a long-term solution that would allow the U.S. government to get past the borrowing limit known as the debt ceiling, which was reached at the end of the year.
The scaled-down deal “addressed the fiscal cliff but did nothing to address longer-term fiscal health of the nation,” Aneta Markowska, an analyst at Société Générale in New York, wrote in a research note sent before the final vote in the House of Representatives on Tuesday night in Washington. “This puts the U.S. rating at risk for a downgrade.”
Broader tax overhauls also remain on the table for 2013, while the negotiations about the debt ceiling are likely to involve more potentially unsettling brinkmanship in Washington.
The U.S. fiscal problems, noted Tom Kenny, an analyst at Australia & New Zealand Banking in Australia, “are far from over.” U.S. politicians, he added, will face intense negotiations over the next two months about raising the debt ceiling. These “are likely to prove more harrowing than those just completed.”
For financial markets, the last-minute, partial deal reached Tuesday is thus likely to have brought only a temporary reprieve, analysts said.
“Call it breathing room, call it kicking the can down the road, call it whatever you like — come mid-February, when the decision on the legal U.S. debt limit will be needed, the fight starts afresh,” analysts at DBS in Singapore wrote in a research note. “Two more months of shenanigans and waffling/seasick markets? It certainly looks that way.”
David Jolly contributed reporting from Paris.