It is the moment of truth, and this week the world will set their expectations for the coming four years as the November 06 election names the new U.S. President. The incoming president and the partisan-split Congress must take action to prevent the worlds largest economy from staring into the abyss, with Januarys "fiscal cliff" drumbeat warnings of recession expected to reach fever pitch!
Americans head to the ballots on Tuesday November 06 to elect their new president, Barack Obama eyes another term in the White House facing the dreams of Republican Candidate Mitt Romney. The final momentum after a long race will be set this week and global attention is set on the United States.
Markets are tensed over the economic outcome given vast headwinds facing the worlds largest economy from the longest weather-related market closure since the 1880s on Hurricane Sandy to inevitable fiscal cliff awaiting the next U.S. government.
Despite of the focus on the election, the fiscal challenges facing the next U.S. government are the predominant concern, regardless of latest monetary easing embarked by the Fed in a bid to spur growth and most importantly, consumer confidence!
Traders are apparently still obsessed about the fiscal cliff, ignoring the Federal Reserves third of monetary easing announced in September. For who doesn’t know what its all about, the fiscal cliff refers to the automatic tax increases and spending cuts that are set to go into effect January, 1, 2013 if the government doesn’t take action, the ticking time bomb irritating the economic outlook!
As far as we know, there are about 400 billion in tax increases and 200 billion in spending cuts waiting to hit the economy at the dawn of 2013, threatening to drag America back into certain recession, given the fragility of the economy.
The fiscal belt-tightening is expected to reduce the deficit by nearly 500 billion; however a gloomier contraction is expected to dent the GDP. The Congressional Budget Office warned of a 1.3 percent contraction if action was not taken immediately.
Meanwhile, economic data from U.S. had generally provided some relief to the market in the last few days and this should be a positive tone for an Obama election victory; however Wall Street would have favored a Romney win if NFP employment missed expectations.
In the last jobs report before next weeks elections, Labor Department figures showed on Friday that 171 thousand jobs were added to nonfarm payrolls following a revised 148 thousand gain in September, flushing away analysts median estimate of 125 thousand.
Obama is seen taking the lead over Romney after the unemployment rate held below 8 percent, at 7.9 percent in October for the first time since he took the office, raising the odds he would lead the race for the White House before his Republican candidate.
Signs are growing that the global economy is losing the pace its needs to start a new year, as we tip into the fourth quarter with some of the largest economies still reporting considerably weak fundamentals, signaling the recovery is running out of steam.
The U.S. economy, like other leading economies, has shown lackluster improvement and modestly upbeat expansion in the third quarter of the year, however macroeconomics are not showing enough momentum to ease lingering jitters across the markets.
Looking at the bright side, the gross domestic product in the U.S. expanded 2.0 percent in the third quarter from the second, beating analysts expecting 1.3 percent growth, while jobs market printed a positive picture, with unemployment kindly below 8 percent.
Overall, if Congress fails to avoid the so-called fiscal cliff, the economy would be set for a terrifying freefall as of early next year, posing a profound threat to the world economy unless Congress takes significant steps to overcome budget deadlock and sustain the signs of stability seen recently from the economy.