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Obama’s 303: Stimulus or a relaxant?

Thursday, 8 November 2012 - 11:49am IST | Place: Ahmedabad | Agency: DNA
The time has now come for Obama to redeem the pledge he has made during the year-long poll exercise — which observers feel is nothing less than a litmus test of his actual strength.

Obama administration’s intensive investment of diplomatic capital in rebuilding its ties with the American electorate reaped rich dividends on Wednesday, when he beat his Republican rival Mitt Romney with a thumping 303 popular votes. However, after the tryst with the swinging moods, the time has now come for Obama to redeem the pledge he has made during the year-long poll exercise — which observers feel is nothing less than a litmus test of his actual strength. For one, he has an uphill task of boosting the economy with a stimulus and at the same cut expenditures by $560 billion by January 2013.

However, the echoes of his win down the money corridors globally were loud and clear. Gold inched up, crude oil was also higher and emerging stocks cheered Obama. Markets are expecting a loose monetary policy that will continue to keep pressure on US dollar. 

Thus, when US dollar fell against 15 of the 16 major currencies across the globe, stocks in the emerging market gained. Gold continued its upward movement on Wednesday in Asian and European trade. Other industrial metals on the London Metal Exchange also moved up. Gold has gained $40 dollars an ounce in last 17 hours.  In London at the close of the market it was 1726 an ounce, up by 15 today. Weak dollar makes dollar a more attractive investment avenue. While the market is upbeat, pundits do not seem to be echoing its sentiments. Experts are cautious about the overall impact on market. “The dollar will remain under pressure as long as the deficits are high. Whatever consolidation takes place can happen only over a period of time. Therefore, even if tax concessions are reversed, the deficit will still be high and pressurize the dollar,” says chief economist of Care Ratings, Madan Sabanvis. 

While another leading economist says that global market is too large and complex for even US elections to have any impact. “The financial markets are too large and complex, and even a sovereign nation like USA is too small to say that Obama’s re-election would fuel a commodities rally or move the US Dollar in a particular direction,” says managing director and CEO of Centre for Monitoring Indian Economy, Mahesh Vyas.

Traders also expect gold to continue its upward move. “We expect gold to reach 1,775 level in near term on weak dollar and anticipate liquidity easing measures in the US,” said Girish Choksey, a trader.

In the short term, emerging market equities and Gold are likely to gain. Indian Rupee is also likely to remain under pressure as it also faces resistance to rise from domestic economic front.  “As far as Indian markets are concerned, the re election of Barack Obama will be positive for the Indian equity temporarily, as Obama will continue with the stimulus plan. The stock markets will continue trade between 17,000-19,000 levels,” says CEO of India Forex Abhishek Goenka.  Outlook for Rupee against the dollar is also weak. “We maintain our view of strong dollar and weak rupee in 2012 -2013. We target it to 55 levels by 2012 end and may be 56-57 by March end once again,” Goenka added.


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