Just a few days into 2013, and we market analysts feel exhausted. We have gone from the let’s-buy attitude inspired by the agreement over the Fiscal Cliff in the US–delayed and limited–to a vanishing confidence moment as the Federal Reserve could reverse its expansionary monetary policy before it was expected. Indeed, good employment figures would remind us of what happened in 1994, when the US central bank made a U-turn after a long period of cash injections.
So 2013 will not be an easy year. It may be a positive year for risk assets and stock markets, but it will not be a pleasurable ride. Investors face very high levels of uncertainty, and these initial months of the year are already showing the stress.
The latest meeting minutes from the Federal Open Market Committee that have been published tell us that several advisers doubt about the ultimate effect of such a long and extreme monetary policy as the one currently in place. Dealing with a $3 trillion balance sheet isn’t at all reassuring, either. Will non-orthodox measures generate sound a long-lasting economic growth? Although the short-term priorities seem clear, many share the hesitation.
Europe finds itself in a similar situation. Finally, the International Monetary Fund recently admitted the negative impact of the austerity budget programme must be revised: every percentage point that governments cut on public spending tends to depressed the general economy by one and a half percentage points, not a mere half point as most thought. Shouldn’t this bring more flexibility to the deficit targets imposed by the European Commission?
Still, for Europe, the problem is how much market conditions can improve. Access to credit in the eurozone’s periphery may be slightly better nowadays, but the common currency was at the brink of a breakup only six months ago. The real worry is that governments in trouble believe there is here an excuse to relax necessary reforms and budget corrections. Excessive debt is still the menace that threatens Europe.
There is, unfortunately, some shared ground between Europe and the US: the apparent impossibility to reach major political accords. Will the Americans sort their Fiscal Cliff and Debt Ceiling conundrums? Will the European Central Bank be allowed to intervene so risk premiums drop? The fight is served.