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MENAFN - ecPulse - 18/11/2012

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A quiet week lies ahead for the world’s largest economy in terms of economic data, but the fiscal cliff fear still dominates the market. The fiscal cliff will be effective in January 1 if the Republicans and Democrats fail to reach a compromise over the budget.

The budget disagreements have been going on for over a year. The Democrats want to see tax increase on high-income earners and corporations, but the Republicans want to keep the tax cuts on high earners and the equal tax for all different levels of income, including spending cuts in government programs.

Obama strongly believe that ending the tax cuts on high earners alongside job creation would solve the budget problem, alongside some spending cuts in some programs. He stated yesterday that 98% of low-income earners and 97% of small enterprises would not see their taxes increase.

If the fiscal cliff becomes effective, it will provide more around 600 billion for the budget, through tax increases and public spending cuts. However, this will come at the expense of economic growth for the world’s largest economy, analysts believe that unemployment will increase the GDP will contract by 0.5% putting the U.S. economy into deep recession if not depression in the first quarter of 2013.

Housing sector data for October 2012 will be released next week, existing home sales it is expected to show flat at an annual pace of 4.75 million houses compared to the previous decline of 1.7% at 4.74 million houses.

 Housing Starts are expected with 3.7% drop at 840k house compared to the previous monthly change of 15% with an annual rate of 872k house. Building permits are expected to decline by 2.6% to 865k permit from 894k permit.

Investors will closely monitor the housing sector data to see how well the sector benefited from the Federal Reserve 40 billion quantitative easing announced in September.

Also the University of Michigan confidence report will be released Wednesday November 21, expectations are for confidence levels to remain unchanged from the previous reading of 84.6, despite the Federal Reserve quantitative easing plan.

Despite the importance of these reports, investors are still awaiting for the fiscal cliff fate, Obama has talked to Congress leaders last Friday November 16 and asked them to work together to reach consensus instead of playing politics.


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