Returning to its state of
directionless, the markets seem to be both reluctant to push stocks higher as
well as unwilling to squeeze them lower. As a result, the Jakarta Composite
Index is expected to gyrate between 3950 and 4150 in the near-to-medium term.
After a better-than-expected
nonfarm payrolls data last Friday, the market went higher but only for a
limited duration and finally the euphoria got dissipated rather quickly. Recent
developments in Europe were also seen as insignificant, especially without
collective statements from European leaders who are mostly on vacation until
September.
Sure, ECB President Mario Draghi’s
words may cool down some tension among investors, but without action, words are
just words. Sure, the creditors and the Greek governments agreed to stick to
the bailout conditions, but that was after a rather lengthy meeting between
them. Furthermore, the agreement cannot guarantee that the Greeks will be able
to escape bankruptcy next year as their economic outlook remains precarious.
Essentially, we’re back in a
wait-and-see mode, but with the focus set upon the central bankers such as the Federal
Reserve and the European Central Bank.
In the meantime, the governments
in Europe and the U.S. also have their homework to do. As we all know, European
governments must forge a stronger cooperation between them in dealing with the
European debt crisis, especially over the Spanish and Italian ones. As for the
Greek issue, the current precarious situation may need a long time to fix and
it remains to be seen whether the creditors’ patience could match that amount
of time needed to fix the Greek economy.
Across the Atlantic, the
so-called fiscal cliff looms large on the horizon. Despite being able to avert
another crisis when the U.S. fiscal year ends on September 30, the recent deal
is seen as having no impact on putting off the fiscal cliff from the table.
About Fiscal Cliff
In short, fiscal cliff is the
predicted reduction in budget deficit which is seen as crippling the economy as
some laws are about to expire at this end of the year while at the start of
2013 there will be the auto-spending cuts of $1.2T over 10 years. Recently, the
House and the Senate struck a deal which will fund the government for six
months after the fiscal year ends on September 30. The funding amounts to
$1.047T should dodge the shutdown from happening for now until next March. Yet,
this deal is not affecting the fact that the Bush tax breaks will expire this
year-end and the spending cut will be automatically triggered early next year.
Combined, both have the capability of choking the economy pretty bad and could potentially
throw the U.S. economy into recession.
While the fiscal cliff is a
serious matter for the U.S. economy, the solution is not expected soon. The
U.S. election in November will set the stage for another showdown between the
Democrats and the Republicans should there’s no decisive victory in the
election. Without such decisive victory, we will see another 11th
hour deal just like what happened last year. In the meantime, there’s a risk
that a slow decision-making could lead to another S&P downgrade of US debt
rating.
To some people, fiscal cliff is
seen as more hazardous than the European debt crisis, but both added with the
risk of China’s hard landing could be a dangerous combination should all three
happen simultaneously.
In the meantime the fiscal cliff
is still rather low on the investors’ radar, but as we approach the year-end
the matter will become increasingly talked about.
Overall, the global market is
seen consolidating for now, but in September the market’s focus on Europe is
expected to intensify while in November the U.S. election will be the main
theme. Come December we may see another dogfight between the Democrats and the
Republicans which is expected to end with an 11th hour deal.
Written by Unknown
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