Will a second presidential term for Obama improve prospects for the global economy?

Dan Morris

Markets like certainty, and the fact that President Obama won a definitive victory must be taken positively. With little change in the make-up of Congress, there is a good chance for a resolution to the issue of the fiscal cliff before the end of the year. However, the fiscal cliff may turn out to be just a distraction: even if politicians manage to find a short-term solution, investors are likely to turn their attention back to the fundamental outlook, which is far from resolved. Tough negotiations could lead to a drop in equity prices, and although valuations are not as attractive as they were a year ago, that could represent a good buying opportunity. We may have to wait until next year for longer-term fiscal challenges to be addressed. With Obama in his last term, and the Republicans failing to seize the Senate, there is scope for compromise and substantive agreements.

Dan Morris is global strategist at JP Morgan Asset Management.

Ishaq Siddiqi

Although Obama’s victory in the election has removed political uncertainty, the political and economic challenges facing the US are still concerning. US stock markets have not welcomed Obama’s victory as cheerfully as their European peers, which seem content with the fact that no change in US leadership means no change in the current Federal Reserve policy. However, the unchanged balance of power is likely to mean gridlock in Washington, and confidence over Obama’s ability to negotiate a solution to the looming fiscal cliff is still low. Action towards resolving the issue is unlikely to be decisive, and the upshot is that 5 per cent could be wiped off US GDP in 2013 – dragging its economy back into a recession. Investors are likely to react with caution going into the year-end, and this could negatively impact the US dollar.

Ishaq Siddiqi is market strategist at ETX Capital.