US economic data was generally positive overnight, despite the University of Michigan's final reading on consumer sentiment falling from 82.7 to 72.9 in November – below forecasts. But US personal spending rose by 0.6 per cent in November, the biggest rise in three years, while incomes rose by 0.8 per cent in November.
US durable goods orders rose by 0.7 per cent in November – well ahead of forecasts of 0.2 per cent while non-defence capital goods orders excluding aircrafts – a proxy for business spending – rose by a healthy 2.7 per cent in November. The Chicago Fed National Activity Index rose from -0.64 to 0.1 in November.
European shares closed lower on Friday as the fresh uncertainty surrounding US budget talks dampened investor sentiment.
Banking stocks led the declines after a UK parliamentary report warned the industry may need tighter regulations. The STOXX 600 European banking index fell by 0.9 per cent. The benchmark FTSEurofirst 300 index and the UK FTSE both fell 0.3 per cent while Germany's Dax lost 0.5 per cent. In London, Rio Tinto lost 0.1 per cent and BHP Billiton fell 0.6 per cent.
US stocks fell Friday after a Republican plan to avoid the "fiscal cliff" failed to gain sufficient support. House of Representatives Speaker John Boehner failed to gain enough votes even from his own party to pass his "Plan B" tax bill. The Dow Jones closed down 120 points or 0.9 per cent with the S&P 500 lower by 0.9 per cent and the Nasdaq fell 29 points or 1 per cent. For the week, the Dow rose 0.4 per cent, the S&P 500 added 1.2 per cent and the Nasdaq gained 1.7 per cent.
US treasuries rose on Friday (yields lower) as the bid for safe haven assets increased the failed bill by Republican Speaker Boehner. US 2-year yields fell by 1 point to 0.27 per cent while US 10-year yields fell 3 points to 1.77 per cent. Over the week US 2-year yields rose by almost three points while US 10-year yields rose by just over seven points.
The US dollar rallied against the euro and commodity currencies as investors turned to safe haven assets. The euro fell from highs near $US1.3330 to lows of $US1.3155, and closed US trade near $US1.3185. The Aussie dollar fell from highs near $US104.50c to lows near $US103.90c and held near $US104.05c in late US trade. And the Japanese yen eased from 83.90 yen per US dollar to 84.25 yen and was near 84.20 yen at the close of US trade.
World crude oil prices fell sharply on Friday, eroding the week's gains. Fears that a budget deal will not be reached before the end of the year, coupled with downbeat data on consumer sentiment fuelled selling of riskier assets. Brent crude fell by $US1.23 or 1.1 per cent to $US108.97 and Nymex crude fell by $US1.23 or 1.4 per cent to $US88.66 a barrel. Over the week Nymex crude gained 2.2 per cent.
Base metal prices were mixed on the London Metals Exchange on Friday. Copper recovered, up by 0.8 per cent after the steep falls in the prior session. The gold price rebounded on Friday supported by bargain hunters and short covering. Comex gold futures rose by $14.20 to $US1,660.00 per ounce. Over the week gold fell by 2.2 per cent. And the spot iron ore price fell by 10c to $US135.40 a tonne.
Craig James is CommSec's chief economist. Adam Carr is on leave, returning January 7. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.