GLOBAL MARKETS-Dollar gains, shares dip as U.S. election relief fades

Wed Nov 7, 2012 9:20am EST

* World shares shed gains made after Obama win, on fears
over growth
    * U.S. stock futures point to lower open on Wall Street
    * Euro falls as Europe's growth outlook cut
    * Oil and copper lower on demand worries

    By Richard Hubbard and Marc Jones
    LONDON, Nov 7 (Reuters) - The dollar rose and world shares
turned lower on Wednesday as investors worried about the outlook
for the U.S. and euro zone economies after President Barack
Obama's re-election.
    Wall Street share futures, which had pointed to a higher
open on relief over the clear election outcome, also reversed
course as the fiscal problems of the United States and slowdown
in Europe returned to haunt investors.
    A preservation of the status quo in Washington after a
bitter and expensive election campaign raised concerns about 
prospects for an early solution of the budget deficit problem.
    In less than two months, tax cuts enacted under President
George W. Bush expire and mandatory spending cuts begin to bite
in what has been called a "fiscal cliff" that could crush the
U.S. economic recovery.
    "People will be refocusing away from the election to more
important issues surrounding the fiscal cliff, and given that
the status quo prevailed, the question is whether those same
politicians will be able to reach a compromise before December
31," said Valentin Marinov, Director of FX Strategy at Citi. 
    The dollar rose to a two-month high against a basket of
currencies of 80.863 and also hit a high of 0.9468 Swiss
francs 
    The MSCI world equity index, which had
climbed 0.25 percent in the wake of Tuesday's election, lost
this ground as trading progressed to be slightly lower at 331.46
points by midday in Europe.
    The U.S. budget issue has already had a significant effect
on business investment and spending, leading many in the markets
to call for Democrats and Republicans in Congress to find a
quick resolution before global growth is damaged.
    "On the basis that the U.S. election has resulted in status
quo in the White House and in Congress, politicians on both
sides should now get on with resolving the issue of the budget
deficit reduction," said Richard Lewis, head of Global Equities
at Fidelity Worldwide Investment.
    
    GREEK DRAMA
    Europe's main stock markets were facing their own hurdles
from a weakening economic outlook and the unresolved problems
facing Greece and Spain.
    European Central Bank President Mario Draghi, speaking
before Thursday's November policy meeting, said the outlook for
the euro zone economy was expected to remain weak and inflation
was well contained. 
    The ECB is set to leave interest rates unchanged, deferring
a cut in borrowing costs that would risk undermining the impact
of Draghi's bond-purchase plan a year into his ECB presidency.
 
    But his comments followed the release of economic forecasts
by the European Commission showing the euro zone economy will
barely grow at all next year, though it may pick up in 2014.
 
    The Commission also forecast the Spanish economy would
contract 1.4 percent this year, much more than the Madrid
government's own prediction..
    "At a time when everyone is looking at Spain and wondering
when it will ask for a bailout, the Commission is saying that
Spain is likely to miss its (budget) targets," said Societe
Generale economist Michala Marcussen.
    Greece was also rattling investors as the parliament is due
to vote later in the day on an austerity package needed to
secure a fresh injection of euro zone and IMF aid and avert
bankruptcy. 
    The FTSE Eurofirst 300 index of top European shares
was down 0.25 percent at 1,112.01 points, with London's FTSE 100
, Frankfurt's DAX and Paris's CAC-40 
down between 0.25 and 0.7 percent.  
    The euro, which touched a high of $1.2876 as the
greenback slipped in response to the U.S. election, also lost
ground on the weaker economic outlook to be 0.4 percent lower at
$1.2750.    ]
    Benchmark German government bond yields 
slipped after the Commission published its forecasts to around
1.4 percent, while Spanish and Italian debt was trading broadly
steady. .   
    
  
 
    STATUS QUO   
    U.S. bond markets took Obama's win largely in their stride.
With the Senate still divided, U.S. Treasury futures were
about 0.4 percent higher at 133-8/64 points, compared with a
high of 133-19/64 seen in Asian trading.
    Thirty-year U.S. bond prices gained a point to
bring the yield to a low of 2.86 percent, down from 2.92 percent
immediately before the election.
    Gold, which is seen as a safe haven and protection
against future inflation, rose to a two-week high of $1,726.31
an ounce shed some of its gains to be around $1,723.50 an ounce.
Growth-sensitive copper fell 0.9 percent while oil 
slipped 75 cents to near $110 a barrel.
    "There's been an Obama bounce, but what's really changed?
There are still the problems with the fiscal cliff, and the
situation in Europe is still pretty dire," Michael Hewson, an
analyst at CMC Markets, said.
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