Europe still poses greatest risk to financial markets
By James Langton |
While the U.S. fiscal situation has apparently captured market attention in the wake of the U.S. elections, it's not the only political risk out there, TD Economics says.
In a new report, TD suggests that concerns about the U.S. "fiscal cliff" are overblown. It expects that some sort of deal will be reached to avoid calamity, and yet, fiscal restraint will weigh on growth, it notes, which will keep U.S. economic growth in the 2% to 3% range next year.
"The financial market implication is that while uncertainty over how the fiscal cliff will be navigated around is likely to add to volatility in the near term, the ultimate resolution and the continued moderate economic growth environment implies a continuation of the lower-for-longer interest rate environment and renewed gains in equities," it says.
Yet, there are numerous political risks elsewhere, TD cautions, including the leadership transition in China, and the ongoing European fiscal crisis. Concern over Iran's nuclear program is also a political wild card, it says.
"From a financial market point of view, the greatest risks come from the socio-economic strains that are building in Europe from high and rising unemployment. The central issue is whether the governments can maintain their fiscal rebalancing in the face of these social pressures," it says. "The sad reality is that the financial crisis must continue because it is the catalyst that forces the political system to make progress towards a resolution."
"The main message for investors is that much has happened, and yet much remains the same," TD concludes. "Global financial markets are navigating a risk-filled environment, which is dominated by political risks. All-in-all, the risks are being managed relatively well, but there are periods when investors lose confidence or become fretful, causing gyrations in markets."
In a new report, TD suggests that concerns about the U.S. "fiscal cliff" are overblown. It expects that some sort of deal will be reached to avoid calamity, and yet, fiscal restraint will weigh on growth, it notes, which will keep U.S. economic growth in the 2% to 3% range next year.
"The financial market implication is that while uncertainty over how the fiscal cliff will be navigated around is likely to add to volatility in the near term, the ultimate resolution and the continued moderate economic growth environment implies a continuation of the lower-for-longer interest rate environment and renewed gains in equities," it says.
Yet, there are numerous political risks elsewhere, TD cautions, including the leadership transition in China, and the ongoing European fiscal crisis. Concern over Iran's nuclear program is also a political wild card, it says.
"From a financial market point of view, the greatest risks come from the socio-economic strains that are building in Europe from high and rising unemployment. The central issue is whether the governments can maintain their fiscal rebalancing in the face of these social pressures," it says. "The sad reality is that the financial crisis must continue because it is the catalyst that forces the political system to make progress towards a resolution."
"The main message for investors is that much has happened, and yet much remains the same," TD concludes. "Global financial markets are navigating a risk-filled environment, which is dominated by political risks. All-in-all, the risks are being managed relatively well, but there are periods when investors lose confidence or become fretful, causing gyrations in markets."
Research - Concerns over “fiscal cliff” overblown: TD Economics - Article - investmentexecutive.com
http://www.investmentexecutive.com/-/concerns-over-fiscal-cliff-overblown-td-economics
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