Spreadex Market Analysis: Global Markets Lifeless

AM Analysis – “Congress finally passes legislation” – Alex Conroy
After 16 days of shutdown congress finally passed legislation to raise the debt ceiling until 2014, allowing the US government to re-open and delaying the immediate fear of default for the time being; budget negotiations have been pushed back to December 13th and government spending until January 15th 2014. Last night’s vote, passed by wide margins in both the senate and the house, brings a brief respite from weeks of political mudslinging. President Obama described the situation as “raising the cloud of uncertainty”. However, it appears the cloud has been just moved slightly further down the road, with Tea-party members re-affirming their commitment to keep fighting Obamacare spending.

With US debt placed on negative outlook by Fitch and the government grinding to a halt, the tactics taken by both sides over the last four weeks should offer no optimism for the delayed budget negotiations, as both sides (in particular the Republicans) demonstrated the lengths they are willing to go to force their agendas. The volatility and uncertainty over the last few weeks has shaved 0.6 percent from Q4 GDP and $24 billion out of the economy per Standard & Poor’s. Republicans may have done irreversible damage to future election hopes after appearing to shoot themselves in the foot as public sentiment strongly places the majority of the blame on them.

The announcement did lead to huge relief for Asian equities with governments petitioning the US to avert a possible default, the MSCI Asia Pacific Index rose 0.7 percent. Dow futures however are currently trading down, after such a rally in anticipation of a deal, investors appeared positioned for the announcement and the markets could well suffer the hangover today.

PM Analysis – “Global markets lifeless” – Shavaz Dhalla
Global markets were lifeless today as the much expected agreement between officials in the US to avoid a default failed to ignite much optimism in equities. Furthermore, since most investors were expecting a deal to be reached, albeit earlier than yesterday, there really isn’t much of an excuse to be diving back into equities. In fact, one could even argue that perhaps the opposite may be the case. Many investors were concerned with how a small number of politicians were able to cause such a delay, so they are questioning whether the present political environment is stable enough to be holding a predominantly equity driven portfolio.

Nevertheless, it seems investors have only been given a temporary respite from the debt problems in the US as funding is only secured until January 15th. Thus, before investors completely brush the debt problems underneath the carpet, they should remember that the funding is only guaranteed in the short-term and the next time round the same group of officials could try and push forward their policies a bit further, which could result in an even further delay.

[The original articles by Spreadex can be found here.]

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