United States opinion polls show a tight race between
President Barack Obama and Republican challenger Mitt Romney,
but leaning towards a win by the president tomorrow.
The markets seem to be favouring a President Obama win
because it will mean less uncertainty, but a "Romney rally"
was yesterday being offered as a one-in-three possibility.
There is a conventional line being offered that says a
victory by long-time businessman Mr Romney will be better for
the equity market, given his predilection for fewer
regulations and lower corporate tax rates.
Any move will be limited as the US economy is facing some
major problems during the rest of the year.
The US economy remains stuck in the mud, according to Westpac
chief economist Dominick Stephens.
Four out of four regional factory surveys turned negative in
October. While the unemployment rate fell below 8% in
September, most of the post-Global Financial Crisis
improvement in the unemployment could be explained by falling
labour force participation, he said.
For its part, the Federal Reserve remains singularly focused
on jump-starting the economy, starting the third round of
quantitative easing in September.
"The latest round of money printing extends the type of
securities the Fed purchases to promote lending by financial
institutions. The thrust of all this is designed to stimulate
asset markets - housing and equities - in the hope that
increases in wealth will increase confidence and then
activity," Mr Stephens said.
With the outcome of the US presidential election likely to be
known late tomorrow night, reports from the US say the
housing market is on the mend, but the "missing piston" of
the world's largest economy does not have enough power to get
the broader recovery firing on all cylinders any time soon.
Typically, housing leads the US economy out of recession.
But the vast equity losses have stymied the market this time,
Construction and related activity would help US economic
growth this year for the first time since 2005, before the
housing bust helped push the US into recession, triggering
Higher sales, prices and building, albeit modest so far, are
a welcome boost, as other drivers of the economy falter.
But housing still accounts for only a small part of gross
domestic product (GDP) compared with the boom years.
US homeowners, like those in New Zealand, remain wary of
taking on debt. Most prefer to save for renovations rather
than borrow. Economists said housing-related jobs have grown
by an average of 11,000 a month this year. That contrasted
with an average monthly decline of 1000 in 2011 and they
should speed up to 30,000 a month by early next year as new
home construction increased.
Mr Stephens said the housing market was offering some hope
but a long and slow deleveraging slog remained in front of
both households and the Government.
The incoming US President would face economic challenges in
The "fiscal cliff" - a swathe of automatic tax increases and
spending cuts that take effect if no agreement is reached on
how to balance but budget - had the potential to un-nerve
financial markets temporarily.
"The way ahead for fiscal policy is the more formidable
challenge as trimming the $US16 trillion [$NZ19.4 trillion]
deficit without derailing the economy will be a delicate
According to the Congressional Budget Office, automatic
spending cuts which would come in if US lawmakers did not
come to an agreement would cause the US economy to contract
at a 1.3% annual rate in the first half of 2013, pushing the
US economy into recession.
Finance chiefs of leading economies pressed the US yesterday
to avert a rush of those spending cuts and tax hikes that
could hurt global output next year.
Unless a fractious Congress can move quickly to reach any
deal after the election, about $US600 billion ($NZ727.4
billion) in government spending cuts and higher taxes start
on January 1.
"They will need to act swiftly on the fiscal cliff and then
they will need to put in place a medium-term fiscal
consolidation," Australian Treasurer Wayne Swan told Reuters
before ministers from the Group of 20 countries gathered for
ASB economist Jane Turner said Republican challenger Mitt
Romney had already indicated he would not grant current Fed
chairman Ben Bernanke a second term.
Instead, Mr Romney was likely to install a chairman who was
considered to be more "hawkish".
That would mean a stronger focus on inflation, potentially
placing less emphasis on the lower unemployment objective.
"Overall, it would suggest tighter monetary policy in the
US," she said.
Regardless of the results of the election, the next four
years will be a tough act to follow from a Wall Street
The benchmark Standard and Poor's 500 index has rallied 66%
since Mr Obama took office - one of the most impressive runs
ever for stocks under a single president.
Admittedly, the timing of his inauguration of just before the
market hit a low point of in March 2009, is part of the
The Fed has used three rounds of asset purchases, one of
which is under way, to keep interest rates slow and stimulate
the economy as the recovery from the 2007-09 recession has
been painfully slow.
The Fed's current policy stance is seen as helping Mr Obama.
Consumer confidence recently rose to a more than four-year