News

On the 16th October, the US Congress and the President passed a bill to suspend the federal debt limit until 7th February 2014, and arrange for an end to the government shutdown until January 15th 2014.  This was passed in both chambers, but 144 Republicans voted against it in the House of Representatives.  A committee has also been formed to attempt to reconcile budget differences between both chambers.

Our view is that it is positive for economic growth and markets that normal activity can resume, but concerning that similar debates may recur in the first quarter of next year.  On the positive side, economic growth and previous budget cuts are reducing the annual deficit, and Republicans appear to have fared poorly in the polls as a result of the current episode, which may take the sting out of future negotiations.  Both parties have fairly differing and entrenched views as to the medium-term balance between government spending and tax raising, and compromise is demonstrably elusive.

For the next quarter, we remain positive on economic recovery, particularly in Europe and Japan, which informs our asset allocation views.