Investors stirred, not shaken by fiscal cliff

Global investors are betting Washington will overcome its budget deadlock despite an apparently serious setback. If they are wrong, there could be a sharp market reaction and the US dollar and Treasury bonds would be among the main beneficiaries, making for a very different dynamic to the euro zone crisis, where bond market pressure was instrumental in forcing policymakers to act.
Global stock markets fell yesterday, pushed lower by a drop on Wall Street, and the euro and oil prices also slipped as a new setback in talks to avert a US fiscal crisis and weak data out of Europe put investors on edge.
A proposal from Republican leader John Boehner to avoid the fiscal cliff failed to get support from his party, casting fresh uncertainty over negotiations to avoid automatic tax hikes and spending cuts in January. The three major US equity indices were off about 1 percent, with the markets also weighed down by a poor reading of consumer confidence.
Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock, said the only approach was to “hope for the best, but plan for the worst.” “Given the much greater downside from a fiscal cliff failure than upside from success, we continue to maintain our tactical defensive positioning,” Rosenberg said.