Markets Focus On Fiscal Cliff After Obama Election Win
Financial markets suffered significant losses on Wednesday — with the DJIA (Dow Jones Industrial Average) dropping 312.95 points, around 2.5% on the day, to close around 12,932.73 and experiencing its worst loss this year.
This came after President Obama defeated Mitt Romney, his Republican challenger in Tuesday’s US election. A potential clash over budget measures has now become a key focus for market participants. President Obama is still facing a House of Representatives which is Republican controlled, which could spell difficulty in terms of reaching any compromise on difficult issues like the so called "fiscal cliff" as named by the Federal Reserve Chair Ben Bernanke. The fiscal cliff is a package of automatic spending cuts and tax increases worth $600 billion, which is due to take effect around the end of this year, which could have a significant adverse affect on economic growth.
The S&P 500, which is often viewed as a barometer for risk, likewise dropped over 33 points, and an associated 2.4%, to dip under the psychological 1,400 level and hit 1,394.53. The bearish sentiment today was also attributable to renewed concerns around the economy in the eurozone area.
The strong downside moves seen today with the markets referenced above, mark a flow of money from risk based assets into perceived safe havens. The US dollar typically gains when this happens and today was no different as the EURUSD forex currency pair continued its recent drop and dipped under the 1.2763 previous lows before seeing a reversion to the intra-day trading range.
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