City Watch: All eyes are on the US ‘fiscal cliff’, says Mark Marshall

WITH just a month to go in the United States before automatic spending cuts and tax increases are due to come into effect, attention is now almost exclusively focused on current negotiations between the Republican controlled Congress, and the Democratic President.

The “Fiscal Cliff” (the popular shorthand for describing the difficulty faced by the US government at the end of December) is when automatic tax increases, combined with scheduled spending cuts, threaten to plunge the US economy into recession, unless a compromise agreement is reached between the Republican-controlled Congress and the Democrats.

The Republicans are demanding spending cuts which the Obama administration will only agree in return for higher taxes on the rich which are opposed by Congress. As of now, the two sides are as far apart as ever on this issue, but many insiders expect a deal to be reached before the deadline.

Given its importance, markets have experienced a high degree of volatility in November, with the S&P 500 sliding to a four-month low in the immediate aftermath of the US elections only to recoup most of the losses by month end.

The latest move higher is part of a broad-based “risk on” rally. Investors are now taking a more optimistic view that Congress and the President will avoid driving the economy over the edge, coupled with hopes that some stability was at last returning to the euro-zone.

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In the UK, there has been genuine enthusiasm over the appointment of Mark Carney, who will take over as Governor of the Bank of England next year. His appointment will take some pressure of the Chancellor when he presents his autumn statement tomorrow.

: : Mark Marshall is a stockbroker with Charles Stanley & Co in Ipswich

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