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| Barack Obama re-election turns focus to budget clash | Barack Obama re-election turns focus to budget clash |
| (35 minutes later) | |
| A looming clash over US budget measures is now set to become the focus of investor attention following the re-election of Barack Obama. | A looming clash over US budget measures is now set to become the focus of investor attention following the re-election of Barack Obama. |
| President Obama needs to secure a deal with the US Congress to avoid the so-called "fiscal cliff". | 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. | 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. | 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%. | The main share indexes in the UK, Germany and France were up by between 0.3-0.5%. |
| Michael Hewson, a senior analyst from CMC Markets, said the markets had "adjusted to the fact that there would be continuity with respect to the economic policies of the last four years". | |
| "What it doesn't change is the problems facing the US economy, and the roadblock that is the fiscal cliff. | |
| "Once the euphoria of an Obama win has died down, this is likely to be the one thing that markets and investors focus their attention on," he said. | |
| Tough talks | Tough talks |
| The tax rises and spending cuts are currently due to come into force across a number of days in January. | |
| They include everything from the end of a tax relief scheme for middle earners, to a reduction in how much doctors are paid by Medicare, the government-administered healthcare programme. | |
| Some of the tax rises apply to the timetabled end of relief schemes started during the administration of George W Bush. | |
| 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. | 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 because the opposition Republican party has maintained a majority in the House of Representatives, the lower house of Congress. | |
| The Republicans want to see a general fall in federal spending to help reduce the US budget deficit, and the amount of money that the administration has to borrow to cover the shortfall. | |
| The Democrats also want to reduce the deficit, but favour doing so more through higher taxes, primarily on higher earners. | |
| The BBC's economics editor, Stephanie Flanders, said that half of the timetabled tax rises and spending cuts may come into force, but others would be harder to reach agreement on "with both sides so angry". | |
| "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. | "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." | "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. |
| 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. | 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. |
| QE is designed to boost lending, and therefore economic growth, but it can have a weakening effect on the currency. | QE is designed to boost lending, and therefore economic growth, but it can have a weakening effect on the currency. |
| Broader concerns | Broader 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. |