Markets absorb Obama win
US stocks fell today in the wake of Barack Obama's re-election as US president, as comments by European Central Bank President Mario Draghi underscored the weakness in Europe's economy.
The Dow Jones industrial average was down 118.58 points, or 0.90 per cent, at 13,127.10. The Standard & Poor's 500 Index was down 13.99 points, or 0.98 percent, at 1,414.40. The Nasdaq Composite Index was down 38.66 points, or 1.28 percent, at 2,973.27.
Wall Street share futures, which had pointed to a higher open on relief over the clear election outcome, also reversed course as the fiscal problems of the United States and slowdown in Europe returned to haunt investors.
A preservation of the status quo in Washington after a bitter and expensive election campaign raised concerns about prospects for an early solution of the budget deficit problem. In less than two months, tax cuts enacted under president George W. Bush expire and mandatory spending cuts begin to bite in what has been called a "fiscal cliff" that could crush the US economic recovery.
"People will be refocusing away from the election to more important issues surrounding the fiscal cliff, and given that the status quo prevailed, the question is whether those same politicians will be able to reach a compromise before December 31," said Valentin Marinov, director of FX Strategy at Citi.
The dollar rose to a two-month high against a basket of currencies of 80.863 and also hit a high of 0.9468 Swiss francs The MSCI world equity index, which had climbed 0.25 per cent in the wake of yesterday's election, lost this ground as trading progressed to be slightly lower at 331.46 points by midday in Europe.
The US budget issue has already had a significant effect on business investment and spending, leading many in the markets to call for Democrats and Republicans in Congress to find a quick resolution before global growth is damaged.
"On the basis that the US election 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," said Richard Lewis, head of Global Equities at Fidelity Worldwide Investment.
Europe's main stock markets were facing their own hurdles from a weakening economic outlook and the unresolved problems facing Greece and Spain.
European Central Bank President Mario Draghi, speaking before tomorrow's November policy meeting, said the outlook for the euro zone economy was expected to remain weak and inflation was well contained. The ECB is set to leave interest rates unchanged, deferring a cut in borrowing costs that would risk undermining the impact of Mr Draghi's bond-purchase plan a year into his ECB presidency.