US Fiscal Cliff Deal Boosts Markets, But Uncertainty Lingers

Markets have rallied strongly on the back of last night’s news that the US House of Representatives passed the Senate bill by 257 votes to 167, avoiding the automatic US$600bn worth of tax increases and spending cuts scheduled for this year. President Barack Obama will likely claim this as a significant achievement, which may allow him to agree to more comprehensive spending cuts with Democrats, improving his ability to negotiate with House Republicans going forward. Indeed, Republicans will most likely turn their attention to spending cuts as Washington heads into negotiations surrounding the debt ceiling and long term deficit reduction. While progress has been made, there is still room for uncertainty to flare up again, should Republicans and Democrats fail to make progress on the remaining issues. For now however, we see scope for markets to continue to rally over the coming days.