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Premarket: TSX, U.S. stocks set for major ‘cliff’ relief rally

Canadian and U.S. stock markets are poised for a major rally this morning on relief that Washington, after much protracted debate, has approved a deal to undo the "fiscal cliff" of tax hikes and spending cuts that would have likely spun the nation back into recession.

U.S. stock futures are up in the 1.3 per cent to 1.7 per cent range, European stocks are up over 2 per cent, and commodities, including copper and crude, are up over 1 per cent. The Canadian dollar is up sharply against the greenback. The U.S. dollar, often seen as a haven investment, is down about 0.5 per cent against a basket of major currencies.

It all suggests the TSX could be looking at gains in the 200-point range when trading begins at 930 a.m. (ET).

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Late last night, the House of Representatives approved a Senate-backed plan that scales back the broad tax hikes and spending cuts that officially took effect on Tuesday. The deal appeared to be in jeopardy on Tuesday due to opposition in the House.

The bill, which raises tax rates on individuals making more than $400,000 and couples making over $450,000, now awaits President Barack Obama's signature. It delays, by two months, automatic spending cuts that could eventually total $1.2-trillion over a decade.

But it does not address the U.S. borrowing limit. Instead, the U.S. will take special measures that will delay hitting the debt ceiling for now. The failure to tackle debt reform means a protracted debate now lies ahead and suggests today's relief rally may not have staying power unless the Republicans and Democrats can reach a broader deal in coming weeks.

And already in 2013, there's renewed worry about the challenges of renewing growth in the European economies. Markit's Eurozone Manufacturing Purchasing Managers' Index for December was revised down to 46.1 from an earlier preliminary reading of 46.3, signifying further contraction in factory output. The index has been below the 50 threshold since August of 2011.

Now, here's a look at the market numbers and what to watch for later today.

MARKETS:

Equities:

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U.S. futures: S&P 500 +1.7 per cent; DJIA +1.3 per cent; Nasdaq +1.7 per cent

Hong Kong's Hang Seng index +2.89 per cent

Shanghai composite index (Closed)

Japan's Nikkei (closed)

London's FTSE 100 +2.19 per cent

Germany's DAX +2.25 per cent

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France's CAC 40 +2.36 per cent

Commodities:

WTI (Nymex Feb) +1.34 per cent at $93.05 (U.S.) a barrel

Gold (Comex Feb) +0.45 per cent at $1,683.30 (U.S.) an ounce

Copper (Comex Mar) +1.19 per cent at $3.70 (U.S.) a pound

Currencies:

Canadian dollar up 0.0080, or 0.80 per cent, at $1.0156 (U.S.)

ECONOMIC INDICATORS TO WATCH:

(1000 a.m. ET) The U.S. Institute for Supply Management publishes its manufacturing index for December. Economists expect a reading of 50.3.

(1000 a.m. ET) U.S. releases construction spending for November. Economists expect a rise of 0.6 per cent from October.

(200 p.m. ET) Federal Open Market Committee releases the minutes of its latest policy meeting.

STOCKS TO WATCH:

Major automakers are releasing their December sales figures.

Avis Budget Group Inc. agreed to acquire Zipcar Inc. for about $500-million in cash. Zipcar shares are surging 48 per cent in the premarket.

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THIS MORNING'S TOP INVESTING READS ON THE WEB:

Why the relief rally after the "fiscal cliff" agreement is unlikely to last long.

This year may be best characterized as a "stock-picker's market," whereby it pays to be a good stock selector, rather than knowing all the latest macroeconomic developments.

Why women have higher investing anxiety than men, and two things to help them overcome it.

Five reasons the Facebook IPO bust was a blessing in disguise.

Lumber prices may tumble as much as 25 per cent in 2013, according to a new study. And Canada may to blame.

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The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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