Comment on the US election

Comment by Richard Lewis, Head of Global Equities at Fidelity Worldwide Investment:

“On the basis that theUSelection has resulted in status quo in the White House and in Congress, politicians on both sides should now get on with resolving the issue of the budget deficit reduction.  With the balance of power remaining the same, there is no excuse for delay.

“We will see some very intense negotiations pre-Christmas around the budget deficit and the negotiating stance of the two parties will start off poles apart.  The Republican House of Representatives made it clear that they will block any tax increases while President Obama has intimated that if he cannot get satisfactory movement from the Republicans that he will consider driving over the fiscal cliff.

“After a lot of wailing and gnashing of teeth, we are hopeful of a budget agreement along the lines of the Bowles-Simpson proposal which is based on a ratio of 3-1 spending cuts versus tax increases.

“The budget issue is very important as we have already seen a very significant slowdown in corporate spending while chief executives wait for a resolution to this issue.  Q4 activity levels will be low as a result and this will be exacerbated by the impact of Hurricane Sandy.  On the basis that there will be a resolution before the first of January, we can expect a decent bounce-back in both economic activity and confidence early in the new year.”

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