2 Nov 2012

Financial markets focus on 'fiscal cliff'

7:19 am on 2 November 2012

No matter who wins the US presidency next week, financial markets will remain focused on the so-called fiscal cliff, which will overwhelmingly determine the direction of financial markets.

The fiscal cliff refers to the automatic triggering of harsh spending cuts and tax increases in January if no deal is reached by US lawmakers, which some estimate will send the US into recession.

Harbour Asset Management director of fixed interest Christian Hawkesby says the uncertainty about the outcome of talks has unnerved markets.

He says the challenge is balancing a credible medium to long term path of bringing the deficits and the level of government debt to GDP - while at the same time having a path that over the short to medium term will keep the economic recovery on track.

Mr Hawkesby says a compromise that muddles through is the most likely scenario.

He says New Zealand will be driven by the ebbs and flows of the attitude to risk across markets.