Global stock markets surged Wednesday in response to a compromise between Democrats and Republicans on averting spending cuts and tax increases that could have plunged the world's largest economy into recession.
Late Tuesday the U.S. House of Representatives voted to avert the worst of the "fiscal cliff" by supporting a Senate measure to hike income tax rates on only the wealthiest Americans. The vote passed the House largely along party lines, 257 to 167. 85 House Republicans voted to support the measure. It is the first income tax rate increase in the United States in 20 years.
Hong Kong's Hang Seng jumped Wednesday nearly 3 percent, while Europe's three largest bourses, London's FTSE 100, Germany's DAX and France's CAC 40, all climbed more than 2 percent. The DAX hit a five-year high.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
The risk-on sentiment also emerged in the bond market, where the yield on 10-year Treasury bonds rose to 1.84 percent. Bond yields move in the opposite direction of bond prices.
U.S. investors appeared more cautious. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite opened modestly higher before gaining momentum and posting gains by mid-morning of more than 2 percent.
Republicans and Democrats are expected to clash again in a month over getting the legal limit to the debt ceiling lifted. Further, the two parties must take up sequestration in March to prevent $110 billion in scheduled spending cuts — half from defense spending and half from non-defense discretionary spending programs.
The gains Wednesday in U.S. stocks extended Monday’s (markets were closed Tuesday, New Year's Day) gains of 1.7 percent, the largest year-end increase since 1974, according to Bloomberg News.
Mike Obel is a reporter for the International Business Times, where this article initially appeared.