US fiscal 'fiasco' big threat for 2014: Nomura's Newton
The continuing fiscal "fiasco" in Washington will be the key concern for investors going in to 2014, according to Alastair Newton, senior political analyst at Nomura investment bank.
Markets might have been relatively sanguine during October's partial Government shutdown, but Newton believes this muted reaction to the fierce political battle could encourage right-wing politicians to push the limits a little further.
"Fiscal uncertainty looks set to run into (the first quarter of 2014), which could delay tapering to (the second quarter of 2014)," he said in a research note released Monday.
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A compromise signed by President Barack Obama in October extended the debt ceiling until February 7 and reopened the government by approving funding until January 15. That means the country could be brought to another budget crisis in a few months.
Furloughed workers went back to work after more than two weeks out and the deal also released the government from a crisis that began with demands from House Republicans aimed at "defunding" the administration's health care law, President Barack Obama's signature domestic program, which began enrolling uninsured Americans on October 1.
Newton said that a non-binding agreement to be addressed by the House and the Senate in early January does look possible, which could annul the January 15 budget deadline. This could potentially avoid another government shutdown, but he added that the deal could resolve spending concerns but could just leave issues surrounding the debt ceiling up in the air.
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"(It is) not clear that any such agreement would include a provision to lift the debt ceiling by February 7, with the prospect that the U.S. Treasury would again have to resort to extraordinary measures to avoid a possible default," he said.
"This could drag on until at least mid-March and possibly, given high expected tax revenue inflows in late March, until mid-June."
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Conservative Texas Republican Ted Cruz, a high-profile campaigner against President Barack Obama's signature health care law, appears to remain determined to do whatever he can to undermine "Obamacare", including precipitating another government shutdown and debt ceiling crisis, Newton said.
He added that the risk is that, given the modest market reaction to the recent impasse, the Tea Party might be willing to go even further next time.
"I doubt that the core of the Tea Party will be moved by electoral considerations, even though prospects for a Republican Senate majority in 2014 could be jeopardized – and even the party's current House majority put at risk," he said.
By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81