The US election is finally over but thankfully for us red-blooded types the biggest drama is yet to come.
Markets reacted strongly to Barack Obama’s re-election with investors fearful that a split Congress will crash the US straight into a “fiscal cliff” of automatic tax rises and spending cuts. Traders I know say the markets are likely to fall heavily over the next few weeks on uncertainty as politicians scrabble for a solution – let’s just hope Obama starts playing more golf with his Republican rivals ahead of the December 31 deadline.
Closer to home, the Bank of England decided not to print any more money last week and kept its quantitative easing programme unchanged at £375bn. Economists I know tell me the possibility of more QE is still on the table and a further dose could be administered to the economy in early 2013.
Britain might be out of recession but the Bank’s policymakers face a challenging few months ahead. While the economy grew in the third quarter, there are no guarantees things will be the same in the fourth quarter and the Bank was downbeat about growth prospects in its latest quarterly inflation report.
The Bank warned that inflation was likely to be high for longer than it previously expected, piling on the pressure for British households. Inflation had been falling in recent months but jumped again in October to 2.7pc from 2.2pc in September because of rising food prices and the tripling of tuition fees.
Economists tell me further rises are likely in the months ahead as higher energy bills feed through. Some are expecting inflation to rise to 3.5pc by mid-2013, posing a potential dilemma for those Bank policymakers in favour of more QE.
In terms of commodities, if Obama’s victory does result in more US stimulus some say it will be good for gold – although experts I know aren’t so sure.
If negotiations over the fiscal cliff get hairy and party political as people expect, there is likely to be a move away from risky assets, driving the US dollar up as US investors sell foreign investments Ironically, this will be bad for gold.
Analysts are getting hopeful that the change in Chinese government will mean more spending on roads, electricity grids and other big projects. They reckon this will be good for base metals and bulk commodities such as iron ore. However, this is probably just wishful thinking. The country has recently announced $157bn of spending on infrastructure and there has been not much movement in prices. Metals do not look likely to soar in the near term – whatever they announce.
That’s all for now, I’m looking forward to spending a few days back in Blighty after a few weeks on the road.
Things seem a bit different from when I was last here a month or so ago. My family tells me you can even watch Members of Parliament eat Kangaroo testicles in the Australian jungle now.
Whatever is the world coming to?
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
by City Insider
Are the US markets about to crash into the fiscal cliff?
Nov 15, 2012 at 11:57 am in Market Commentary by City Insider
The US election is finally over but thankfully for us red-blooded types the biggest drama is yet to come.
Markets reacted strongly to Barack Obama’s re-election with investors fearful that a split Congress will crash the US straight into a “fiscal cliff” of automatic tax rises and spending cuts. Traders I know say the markets are likely to fall heavily over the next few weeks on uncertainty as politicians scrabble for a solution – let’s just hope Obama starts playing more golf with his Republican rivals ahead of the December 31 deadline.
Closer to home, the Bank of England decided not to print any more money last week and kept its quantitative easing programme unchanged at £375bn. Economists I know tell me the possibility of more QE is still on the table and a further dose could be administered to the economy in early 2013.
Britain might be out of recession but the Bank’s policymakers face a challenging few months ahead. While the economy grew in the third quarter, there are no guarantees things will be the same in the fourth quarter and the Bank was downbeat about growth prospects in its latest quarterly inflation report.
The Bank warned that inflation was likely to be high for longer than it previously expected, piling on the pressure for British households. Inflation had been falling in recent months but jumped again in October to 2.7pc from 2.2pc in September because of rising food prices and the tripling of tuition fees.
Economists tell me further rises are likely in the months ahead as higher energy bills feed through. Some are expecting inflation to rise to 3.5pc by mid-2013, posing a potential dilemma for those Bank policymakers in favour of more QE.
In terms of commodities, if Obama’s victory does result in more US stimulus some say it will be good for gold – although experts I know aren’t so sure.
If negotiations over the fiscal cliff get hairy and party political as people expect, there is likely to be a move away from risky assets, driving the US dollar up as US investors sell foreign investments Ironically, this will be bad for gold.
Analysts are getting hopeful that the change in Chinese government will mean more spending on roads, electricity grids and other big projects. They reckon this will be good for base metals and bulk commodities such as iron ore. However, this is probably just wishful thinking. The country has recently announced $157bn of spending on infrastructure and there has been not much movement in prices. Metals do not look likely to soar in the near term – whatever they announce.
That’s all for now, I’m looking forward to spending a few days back in Blighty after a few weeks on the road.
Things seem a bit different from when I was last here a month or so ago. My family tells me you can even watch Members of Parliament eat Kangaroo testicles in the Australian jungle now.
Whatever is the world coming to?
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.