FTSE100 Update

Surprisingly perhaps, the FTSE 100 is actually looking more positive on the longer term charts. It's a surprise because over the weekend lots of negative comment regarding the US fiscal cliff seem to dominate the financial news. So far this week the markets seem to have taken it in their stride. In part this is a continuation of the recent recovery trend that can be seen on the charts, but it also might be suggesting that despite all the political position taking by the politicians, the markets are pricing in a deal that has to happen. There is some justification for this as history shows.

....seasoned Washington hands say that once this rather gloomy back and forth has played out - and it might take another week or more - the work towards reaching a solution that both sides can sell to their parties and their lawmakers will begin in earnest.

A deal by Christmas, a week before the fiscal cliff deadline, remains uncertain but not out of the question. The so-called fiscal cliff is a combination of U.S. government spending cuts and tax increases due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.

The pattern of little happening until very close to a holiday is well-established on Capitol Hill. The past three pre-Christmas seasons brought important eleventh-hour developments on health care in 2009, tax cut extensions in 2010 and the payroll tax holiday in 2011.

It's so ingrained that many Capitol Hill veterans routinely, and sometimes mistakenly, dismiss as theater pronouncements of progress or stalemate that occur more than a few weeks before the holiday.

"The Congress doesn't work on the clock; it works on the calendar," said Republican Senator Roy Blunt of Missouri, who in 15 years of serving in Congress, including leadership jobs, has been through plenty of tough scrapes.

"There is just that required moment when something has to happen because you've run out of time," said Blunt. In the meantime, "there is a desire to maximize your negotiating position until you realize you don't have any room any more to negotiate. It almost invariably works that way."

http://articles.chicagotribune.com/2012-12-03/news/sns-rt-us-usa-fiscal-congressbre8b205w-20121202_1_fiscal-cliff-representatives-john-boehner-payroll-tax-holiday

So, there you have it, politics will play its part and its a system where things regularly go down to the wire because that is part of the game. On this occasion neither side will want to be seen as being responsible for there being no deal that results in a panic and puts the US economy back towards recession.

For the markets the time up to Christmas with no deal in sight is still likely to be a rocky one, but if a deal is reached then the charts suggest we are setting up to go higher. The Santa rally may still be on.

Charts:

FTSE100 Daily

FTSE100 Weekly