US and Italian Politics Could Mean Fireworks for Investors

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US and Italian Politics Could Mean Fireworks for Investors

US and Italian Politics Could Mean Fireworks for Investors



The US will return today after an extended weekend where many investors and politicians will have been thinking about what to expect from the upcoming sequester in just over a week's time.

In the run up so far, we have seen the usual deadlock between the Democrats and Republicans.

The former is looking to table a sequester replacement next week which includes tax hikes, however, we all know that the Republicans do not want to see any new tax hikes whatsoever.

The Democrats will see stiff opposition in the Senate, but they are even less likely to get any such proposals through the Republican dominated House of Representatives, meaning that further gridlock is inevitable.

There are concerns that the two month delay in spending cuts means that even deeper cuts will be required to squeeze them into their fiscal year, which runs to the end of September.

This will only add to investors' nerves as the larger the cuts, the more likely that we will see a significant drag on the world's biggest economy.

All this means that there could be further volatility as the week goes on, and especially next week as we head nearer to March.

Of course, the other looming political risk is this weekend's Italian election.

Here again, as more and more people talk up the possibility of Silvio Berlusconi returning to power, investors are becoming increasingly nervous.

His plans to reverse all austerity and harden his line towards the EU could lead to a sudden bout of risk aversion if he were actually to win.

There could be some real fireworks next week.

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By Angus Campbell, 19 February 2013


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