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Congress reached an agreement to avoid the overall fiscal cliff tax increases and spending cuts however several of the measures simply temporarily delay spending cuts. Of the tax increases that went through more than 90% will apply to those making $1million or more. The highest tax bracket rose to 39.6% and taxes on dividends and capital gains rose to 20% for those in the highest tax bracket. All wage earners will see their taxes rise due to an increase in the social security tax.
U.S. stocks surged in their first week of the New Year over the agreement. The S&P 500 hit a 5 year high rising 4.6% over the week. The Dow gained 3.8% for its biggest weekly gain since December 2011. Internationally stocks also surged over the week with Japan up 2.8% and Europe gaining 3.2%. The 10 year Treasury yield rose to 1.915% the highest in almost 8 months.
The December unemployment report showed solid if uninspiring job growth with 155,000 jobs added. The number was in line with the average monthly hiring level over the past two years. The unemployment rate was flat at 7.8% as the Novembers rate was revised up to 7.8%.
Minutes of the last Fed meeting released showed discord amongst the group about when to end the bond buying program with some believing it should be in 2013.
Manufacturing in Europe further contracted in December hinting at a continuing recession, while recent manufacturing readings in Asia suggest the region is starting to see growth pick up. Manufacturing also grew in December in the U.S.
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