The Present Greatest Threats to Global Recovery - Fiscal Cliff Crisis and the Eurozone




Tuesday, 27 November 2012

When you consider the sheer impact that the eurozone crisis has had on the global economy, it is relatively surprising that the financial markets have not experienced a more significant decline. In recent times, the markets have actually rallied while the Euro (EUR) has maintained its positive performance against the US Dollar (USD), while traders have sought to adopt a risk averse approach rather than withdraw from the market completely.

While it is proven that the financial markets are broad enough to shoulder the burden of one financial crisis, however, its capacity to survive the threat of two is far more questionable. That is the challenge now facing the markets, as the U.S. Congress has also entered into negotiations with a view to averting the fast approaching fiscal cliff. So the potential of the market to rally further lies in the hands of global politicians, and their ability to resolve long standing financial issues.

The U.S. Futures Market: Reaching a Critical Point in Time

Each financial environment is different, of course, but it appears as though the U.S. futures market is already beginning to suffer a slight decline. It began to head lower on Monday, thanks primarily to the dual threat of economic crisis in both the eurozone and the U.S.. As politicians and ministers across the globe continue to engage in high profile negotiations in an attempt to avert the current economic course, futures for the Dow Jones, Standard & Poor's 500 and Nasdaq 100 Index fell significantly in comparison with last weeks performance. This fading market sentiment is not simply a response to global economic uncertainty, as traders are well versed in the workings of a volatile economy. Of far greater concern is the fact that the parties involved appear to be moving further away from a resolution, after initial optimism that both the eurozone crisis and the fiscal cliff could have managed and averted respectively. The vast financial liability of Greece is particularly troublesome for investors, as its sheer scope is delaying the administration of financial aid and the delivery of a potential bail-out package. Craig Erlam (Market Analyst from http://www.alpari.co.uk) covers a lot of ground on this subject in his morning bulletins over at Alpari’s newsroom. Today’s (Nov 26th) US opening call indicated that the markets are trading lower this morning as intrepid traders await the Greek decision.

The Call for Investors

With the eurozone crisis set to continue well into 2013, the failure of the U.S. to avoid the impending fiscal cliff could prove to be the breaking point for financial traders. With the potential for more than $600 billion to be slashed from the federal governments public spending budget, market sentiment and investor confidence could plummet to an all time low. If investors are to maintain a high trading volume and drive the financial markets forwards, then global politicians must assume responsibility and strive to resolve the global economic crisis.


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