Growth Risks Not Priced Yet
The market’s ongoing serenity in the face of the US’ fiscal risks has confounded many. The binary nature of potential outcomes may have stayed many hands waiting to press the ‘sell’ button, but in other respects there are marked differences compared to 2011, especially on a macroeconomic level. Two years ago global economic and Eurozone uncertainty compounded market fears. At present, confidence is so (quietly) robust such that even marginal levels of US-led fiscal drag are not being priced in; the Pentagon’s decision to recall workers, whose number amounted to almost half of total furloughed US government employees, has added to hopes that the shutdown’s economic impact will be minimal. Confidence is welcome, but central banks should not be complacent.
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