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Global markets flat as Barack Obama wins second term Barack Obama re-election turns focus to budget clash
(about 2 hours later)
Major share markets were little changed after US President Barack Obama won a second term in office. A looming clash over US budget measures is now set to become the focus of investor attention following the re-election of Barack Obama.
The UK's main share index, the FTSE 100 rose by just 16 points in early trading, while Japan's Nikkei ended down by two points. President Obama needs to secure a deal with the US Congress to avoid the so-called "fiscal cliff".
This refers to the $600bn (£375bn) of tax rises and spending cuts that are due to hit the US economy in January.
There was little reaction to President Obama's victory result on the markets, with shares in Europe up slightly.
The main share indexes in the UK, Germany and France were up by between 0.3-0.5%.
Tough talks
The fear is that if the fiscal cliff is not avoided, it may derail a fragile US economic recovery, and in a worst case scenario even push the economy back into recession.
However, President Obama, a Democrat, faces a difficult challenge in securing a deal with Congress. This is because the opposition Republican party has maintained a majority in the House of Representatives, the lower house of Congress.
The BBC's economics editor, Stephanie Flanders, said that half of the timetabled tax rises and spending cuts may come into force.
"About half of this tightening in the economy could still come in, because it is very difficult to see any agreement with both sides so angry," she said.
"The Republicans don't want to see defence spending cuts, which will happen if they don't reach a deal, but the Democrats are just as keen to ensure that the very richest see tax rises, something that the Republicans don't want to see.
"So I don't think we are going to see an early solution on that unless Republicans decide this was a real mandate for Obama's policies, and I'm not sure they will given that it was still relatively close."
The US dollar fell slightly, with the euro rising to $1.286 from $1.281.The US dollar fell slightly, with the euro rising to $1.286 from $1.281.
Investor attention is now likely to focus on President Obama's need to secure a deal with the US Congress over looming tax rises and spending cuts. Analysts said the dollar had fallen because President Obama's re-election means the Federal Reserve is likely to stick to its policy of quantitative easing (QE) - injecting fresh money into the US financial system.
With the Republicans maintaining a majority in the House of Representatives, this may make negotiations to try to avoid the so-called fiscal cliff more difficult. QE is designed to boost lending, and therefore economic growth, but it can have a weakening effect on the currency.
This could see nearly $600bn (£375bn) of tax increases and spending cuts hit the US economy in January.
The fear is that the tax increases and spending cuts that could be enacted if there is no agreement over deficit reduction may derail a fragile US economic recovery, and in a worst case scenario even push the economy into a recession.
"We head into the fiscal cliff, trying to find compromise where it wasn't possible before," said Rob Ryan, director of markets strategy, Asia-Pacific for Royal Bank of Scotland in Singapore.
Germany's Dax index was up 48 points in early trading, while France's Cac had rise by 35 points.
Broader concernsBroader concerns
The spending cuts and increased taxes are not the only concern among investors.The spending cuts and increased taxes are not the only concern among investors.
The US economy has been battling various other issues, not least the high levels of unemployment in the country, which have dented consumer sentiment and impacted growth.The US economy has been battling various other issues, not least the high levels of unemployment in the country, which have dented consumer sentiment and impacted growth.
Despite encouraging jobless numbers last week, unemployment continues to hover close to 8%.Despite encouraging jobless numbers last week, unemployment continues to hover close to 8%.
There are concerns amongst some analysts that the jobs market may not improve anytime soon and that the recovery in the US will remain weak.There are concerns amongst some analysts that the jobs market may not improve anytime soon and that the recovery in the US will remain weak.
That does does not bode well for Asian economies as they rely heavily on US demand for exports and overall growth.That does does not bode well for Asian economies as they rely heavily on US demand for exports and overall growth.
Euro woesEuro woes
Investors have also been wary of the developments in the eurozone, where the Greek Parliament is set to vote on further budget cuts on Wednesday.Investors have also been wary of the developments in the eurozone, where the Greek Parliament is set to vote on further budget cuts on Wednesday.
The parliament will vote on 13.5bn euros ($17.3bn; £10.5bn) of spending cuts, which include tax increases and cuts to pensions.The parliament will vote on 13.5bn euros ($17.3bn; £10.5bn) of spending cuts, which include tax increases and cuts to pensions.
These cuts are key to determining whether Greece can get the next 31.5bn euro tranche of its European and International Monetary Fund rescue package.These cuts are key to determining whether Greece can get the next 31.5bn euro tranche of its European and International Monetary Fund rescue package.
Greece has warned that without this money, which will be used largely to recapitalise the country's banks, it will be bankrupt by the middle of the month.Greece has warned that without this money, which will be used largely to recapitalise the country's banks, it will be bankrupt by the middle of the month.
However, there have been protests in Greece against the proposed cuts.However, there have been protests in Greece against the proposed cuts.
Analysts said that there were fears that it may take some time before Greece is given the money.Analysts said that there were fears that it may take some time before Greece is given the money.
"With Greece there are always a number of stages with any vote. It is a prolonged process to reach any conclusion," said Justin Harper of IG Markets."With Greece there are always a number of stages with any vote. It is a prolonged process to reach any conclusion," said Justin Harper of IG Markets.