Following is reaction from analysts to U.S. President Barack Obama‘s State of the Union address to Congress, which stressed the need to freeze spending and find common ground to boost growth and create jobs.
HIROSHI YOKOTANI, FIXED-INCOME DIRECTOR, ALLIANCE BERNSTEIN, TOKYO:
“There are no real surprises in his speech. The spending freeze plan will have only a negligible impact on the economy. But as Obama is shifting his policy toward the center, his focus will be more on economic growth ahead of the next election, which would be positive for stocks and negative for bonds.”
JOHN CANALLY, INVESTMENT STRATEGIST, LPL FINANCIAL, BOSTON
“He’s definitely moved to the center since the midterm elections and his speech was a bit more business friendly compared to the two previous ones.”
“He set the stage for some difficult decisions and reforms that may or may not happen this year at all. The futures ticked up a bit but the speech was basically what the market was expecting.”
STEPHEN MASSOCCA, MANAGING DIRECTOR, WEDBUSH MORGAN, SAN FRANCISCO
“He clearly sounds more conservative than prior to the November election. It’s a move to the right and he must have been compelled to do so given the results of November’s elections. That’s constructive.”
“The corporate tax proposal might have a beneficial effect on the market but these things have long journeys before being accomplished. We have to see it more close to actual legislation to see a real impact on the market.”
“Overall, I don’t think there was anything surprising tonight and I don’t expect much market reaction tomorrow.”
SEAN SIMKO, HEAD OF FIXED INCOME MANAGEMENT, SEI INVESTMENTS, OAKS, PENNSYLVANIA
“The issue at hand the U.S. is facing is a problem with irresponsible spending. There needs to be fiscal responsibility.”
“The speech was very forward looking.”
“A five-year spending freeze is a first step. There need to be many steps that follow.”
“The Treasury market should react positively to the points around spending cuts.”
JACK ABLIN, CHIEF INVESTMENT OFFICER, HARRIS PRIVATE BANK, CHICAGO
“The markets will like the general balance of his tone. Beating up on oil companies is not a big surprise.”
“It’s the first time he mentioned natural gas as a part of his clean energy policy. Natural gas is remarkably cheap when compared to oil. We could see oil and natural gas prices converge a bit. Oil prices are down about 10 bucks the past couple of weeks.”
“We could see shares of natural gas producers and pipelines go up at the expense of big integrated oil companies. He also mentioned clean coal and that may help railroads.”
“These are a lot of the same concepts that the president has been talking about all along.”
“The lower tax rates could also provide a boost.”
“The losers are oil and banks and the winners are tech, pharma/drug and other research-intensive companies.”
WARD MCCARTHY, CHIEF FINANCIAL ECONOMIST, JEFFERIES & CO., NEW YORK
“President Obama met most of our expectations by focusing on the economy, job creation, innovation and fiscal responsibility, all in a spirit of bipartisanship.”
“He probably improved his image as a pro-business president in the process … He also said a lot of ‘right’ things on the fiscal front and embraced the overall approach of the Bowles-Simpson Commission (on the deficit). He also said the magic words ‘tax code simplification’…”
“…The president appeared to put all budget options on the table which, of course, he needs to do if this country is to put the fiscal house in order. The president has moved toward the middle and that creates the potential for a functional government that addresses our fiscal imbalances in a meaningful way. It is a good first step.”
ROBERT TIPP, CHIEF INVESTMENT STRATEGIST, PRUDENTIAL FIXED INCOME, NEWARK, NEW JERSEY
“One of the things that was absent was any hint of protectionism. He speaks favorably of China and India. There is no hint of bashing that is something markets do not like to see.”
“It is important for him to make a shift toward fiscal restraint. It’s a big positive even with these baby-steps toward that direction. At least he’s teeing up these issues.”
“Our markets have priced in a degree of apathy and procrastination with the government’s dealing with the budget deficit. They had assumed the worst. If this is a turn in policy in making progress on shrinking the budget deficit, we could see today’s gains in the bond market stick.”
“Overall it’s a positive for bonds and stocks. An oversized budget deficit could lead to a ‘crowding-out’ with the government absorbing much of the capital.”
“As for the currency market, loose fiscal policy could be currency positive and a tight fiscal policy could be currency negative. There was an increase in risk-taking today on the heels of the news of this speech. This could lead investors to diversify from the safe-haven dollar.”
CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK
“The economy is stronger than where it was three months ago. The need for fiscal stimulus is less than what it used to be. If that’s the starting point with the Republican leadership, the spending cuts will be smaller than it wants.”
“It looks like these short-term steps are positive for the markets because they take modest steps toward deficit reduction.”
“The stock market should be fine with the spending freeze. I don’t think stocks and bonds will benefit if the cuts are too drastic because the economy is still fragile. People don’t want additional stimulus here. This will allow investors to focus on the Fed.”
MARKET REACTION
Stocks: U.S. stock index futures are slightly higher.
Bonds: U.S. Treasury bond prices are steady at lower levels.
Forex: The dollar is slightly weaker vs yen, flat vs the euro.
Copyright © 2011 Reuters
