Financial markets slumped in the US session as the debt panel of the Congress failed to agree on the 1.2B deficit cut deal. Wall Street declined across the board. Although sentiment recovered modestly after Moody's and S&P's pledged that they would retain the credit rating of the US, DJIA and S&P 500 still made loses of -2.11% and -1.86% respectively. In the commodity sector, the front-month contract for WTI crude oil plummeted to as low as 95.24 before settling at 96.92, down -0.50%, while the equivalent Brent crude contract slipped to a 6-week low of 105.65 before ending the day at 106.88, down -0.63%. Gold failed to act as a safe-haven but instead fell in tandem with risky assets. The benchmark Comex contract lost -2.70% to settle at 1678.6.
After the negotiation on Monday, the super committee formed by Democrats and Republicans issued a statement saying that 'we are deeply disappointed that we have been unable to come to a bipartisan deficit reduction agreement'. This suggested the plan to cut US deficits by 1.2 trillion over 10 years would be put on hold. Financial markets sank after the stalemate only to recover some losses after both Moody's and S&P's said they would not cut US' debt ratings.
The bad news did not concentrate in the US. At the other side of the Atlantics, Moody's issued its Weekly Credit Outlook about France, stating that 'elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications...As we noted in recent publications, the deterioration in debt metrics and the potential for further liabilities to emerge are exerting pressure on France's creditworthiness and the stable outlook (though not at this stage the level) of the government's Aaa debt rating'. This intensified worries that sovereign debt problems have spread from peripheral economies to core ones.
On the macro front, US' existing home sales rose to 4.97M in October from 4.91M a month ago. The market had anticipated a drop to 4.8M. The FOMC will release minutes for the November meeting. It should disclose how policymakers viewed the economic outlook and should unveil the easing tools they favored.