Asia Breathes a Sigh of Relief as There Will Be No Shift in American Policy

Asian stock markets have recovered initial losses and slightly risen this morning following the news that Barack Obama has been re-elected as President of the United States, as this indicates that there will be no major shifts in American economic policy.

On the Tokyo Stock Exchange, the Nikkei index was down 0.1 percent at 7:30 AM, and stock prices in Shanghai fell by the same amount.

However, stock indices in Hong Kong, Singapore, South Korea, and Australia rose between 0.4 and 0.7 percent, leading the MSCI index of Asia-Pacific stocks, excluding Japan, to gain 0.4 percent at 7:30 AM.

Early this morning, while uncertainty lingered over the winner of the presidential race between Barack Obama and his Republican challenger Mitt Romney, stock indices were mostly in the red.

However, after Obama declared victory, stock prices changed direction, even though American futures indices fell by 0.6 percent.

Yesterday, stock prices on Wall Street rose, fueled by speculation about a possible Romney victory in the elections, which is considered more favorable for the stock market, while Obama is seen as better for the bond market due to his support for low long-term interest rates.

Thus, the decline in American futures indices signals a price correction on Wall Street today following yesterday’s rise.

Nevertheless, Asian markets are strengthening as the uncertainty has been removed from the market following Obama’s victory, and no major shifts in economic policy are expected.

“Signals coming from all markets suggest that the outcome of the presidential election is in line with expectations,” says Richard Yetsenga, director at ANZ research.

Following Obama’s victory, prices of 10-year U.S. Treasury bonds rose, with yields falling by 7 basis points, while the dollar weakened.

“Obama’s victory means that the policy of quantitative monetary easing will continue, which is why bonds have strengthened, while the dollar is under pressure,” says Yuji Saito, director at Credit Agricole bank.

Given the balance of power between Republicans and Democrats in the U.S. Congress, the issue of the ‘fiscal cliff’ remains unresolved.

This automatic reduction in budget expenditures and the elimination of tax breaks, totaling around $600 billion, could push the U.S. economy into recession if Congress does not agree on a better solution by the end of this year.

However, as a continuation of the accommodative monetary policy, which the Fed has been pursuing for some time under the leadership of Ben Bernanke, is expected, this could alleviate investors’ fears of the ‘fiscal cliff’.

Under Obama’s leadership, whoever succeeds Bernanke at the head of the Fed when his term expires in 2014 is likely to, like Bernanke, favor loose monetary policy, says Saito.

Following the news of Obama’s victory, which indicates further implementation of very loose monetary policy, the dollar weakened by 0.3 percent against the six major world currencies.

At the same time, the euro exchange rate jumped from yesterday’s 1.2790 to 1.2870 dollars.

Against the Japanese currency, the dollar price rose from yesterday’s 79.95 to 80.10 yen.

The euro also strengthened against the Japanese currency, with its exchange rate rising from yesterday’s 102.40 to 103.10 yen.

After jumping more than $3 yesterday, the futures price of oil on the New York exchange weakened by about 30 cents this morning, to $88.50 per barrel.