The first real test for the coalition government is on Thursday this week when rise in tuition fees vote takes place. In order to appease many of his Lib Dem colleagues the business secretary had another go at some banker bashing over the week end threatening to bring back the bonus tax. It’s amazing what lengths politicians will go to in order to save their skin politically and ultimately try to keep their own constituent voters on side. However that anything the Lib Dems do now is shunned by their supporters and picked up on by the opposition as the first real cracks in this government start to appear. It’ll be a close call on Thursday and is just one of many of the difficult decisions this government has to take in order to reign in the public spending.
The financial markets have been a little fragile in the past few weeks and what they don’t need now is any political uncertainty.
The FTSE is very much undecided as to whether it should commence the week boldly or not and is just taking things easy after a relatively quiet and flat session in Asian. The US Federal Reserve Chairman made it clear over the week end that another round of QE is always an option and as we’ve seen in the past you would expect this to have been well received, however this time round the market is not so sure. Not only are equities not rising following his comments, but the dollar is actually strengthening! It’s clear that any introduction of “QE3” will only become a reality if the world’s biggest economy is in dire straits.
On top of this a bit of scaremongering over other big economies in the eurozone and the overall size of the bailout find are doing just enough to cast some doubt in the minds of investors as they reflect on what has so far been a very good start to the month for equities. As much as the Germans and French will complain it’s clear that they will have to increase the size of the fund to cover the cost of further inevitable bailouts. Next year is likely to see more riots across Europe than in 2010, but not necessarily because of spending cuts, rather tax rises.
So the FTSE is just heading into negative territory but being propped up by resource…
