Happy New Year ladies and gentleman and welcome to 2013.
It’s been an eventful few weeks since we last spoke. Not only have we survived acid indigestion, the Downton Abbey Christmas special and the end of the world – but the US has avoided falling off the dreaded “fiscal cliff”, for now.
Markets kick-started the year in a positive fashion after US policymakers reached an eleventh hour deal to avoid the automatic tax rises and spending cuts, which would have dealt a major blow to the broader world economy.
Economists tell me that the deal only addressed one side of the equation with agreements over the spending cuts simply put off until a later date. The next deadline to reach agreement on this is March 1, so it’s simply a case of kicking the can down the road.
In the Eurozone, it looks like another year of uncertainty. Despite downgrading its growth forecast for the region, the European Central Bank resisted a cut in interest rates in December and I’m told this is now unlikely to happen over the coming months. I’m told ECB president Mario Draghi and his colleagues are more likely to favour alternative methods such as buying bonds if they deem action necessary.
Closer to home, the jury is still out on whether Britain is heading for a triple-dip recession with the latest data painting a mixed picture of the fourth quarter of 2012. Economists I know tell me that things should start looking brighter in 2013 although interest rates are likely to remain at 0.5pc throughout the year. A final £50bn dose of quantitative easing is also possible during the first half of the year.
Commodity prices started the New Year with a bang. The prices of base metals, gold and oil all rose after the US reached the ‘fiscal cliff’ deal.
With the world avoiding Armageddon for now investors are likely to take on more risk over the coming weeks meaning the flight to safety that has caused the dollar to strengthen is likely to reverse.
Gold is expected to have a good year – with a number of top-flight analysts forecasting sharp gains. The $2,000 an ounce level is a real possibility this year, although trading will continue to be highly volatile. Gold’s poorer cousin silver is also likely to be swept along too.
Currency markets have also showed signs of faith in China. So far this year, currencies such as the Australian dollar and the South African rand have been among the biggest gainers.
These countries all benefit from higher Chinese growth because they are all exporters of raw materials. All in all 2013 looks likely to be more positive for commodities than 2012.
That’s all for now, back to work today and then off to the gym like almost every other person in the UK. I considered giving up alcohol for the month but then looked at my schedule for the next few weeks … I’m going to need all the help I can get.
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
Tags: fiscal cliff
by City Insider
US policymakers avoid falling off the fiscal cliff (for now)
Jan 7, 2013 at 9:44 pm in Market Commentary by City Insider
Happy New Year ladies and gentleman and welcome to 2013.
It’s been an eventful few weeks since we last spoke. Not only have we survived acid indigestion, the Downton Abbey Christmas special and the end of the world – but the US has avoided falling off the dreaded “fiscal cliff”, for now.
Markets kick-started the year in a positive fashion after US policymakers reached an eleventh hour deal to avoid the automatic tax rises and spending cuts, which would have dealt a major blow to the broader world economy.
Economists tell me that the deal only addressed one side of the equation with agreements over the spending cuts simply put off until a later date. The next deadline to reach agreement on this is March 1, so it’s simply a case of kicking the can down the road.
In the Eurozone, it looks like another year of uncertainty. Despite downgrading its growth forecast for the region, the European Central Bank resisted a cut in interest rates in December and I’m told this is now unlikely to happen over the coming months. I’m told ECB president Mario Draghi and his colleagues are more likely to favour alternative methods such as buying bonds if they deem action necessary.
Closer to home, the jury is still out on whether Britain is heading for a triple-dip recession with the latest data painting a mixed picture of the fourth quarter of 2012. Economists I know tell me that things should start looking brighter in 2013 although interest rates are likely to remain at 0.5pc throughout the year. A final £50bn dose of quantitative easing is also possible during the first half of the year.
Commodity prices started the New Year with a bang. The prices of base metals, gold and oil all rose after the US reached the ‘fiscal cliff’ deal.
With the world avoiding Armageddon for now investors are likely to take on more risk over the coming weeks meaning the flight to safety that has caused the dollar to strengthen is likely to reverse.
Gold is expected to have a good year – with a number of top-flight analysts forecasting sharp gains. The $2,000 an ounce level is a real possibility this year, although trading will continue to be highly volatile. Gold’s poorer cousin silver is also likely to be swept along too.
Currency markets have also showed signs of faith in China. So far this year, currencies such as the Australian dollar and the South African rand have been among the biggest gainers.
These countries all benefit from higher Chinese growth because they are all exporters of raw materials. All in all 2013 looks likely to be more positive for commodities than 2012.
That’s all for now, back to work today and then off to the gym like almost every other person in the UK. I considered giving up alcohol for the month but then looked at my schedule for the next few weeks … I’m going to need all the help I can get.
Until next time…
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
Tags: fiscal cliff