Despite debt drama, U.S. still outshining Europe

Mon Oct 21, 2013 5:44am EDT
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By Alan Wheatley

LONDON (Reuters) - If Wall Street's record high is a signpost, the U.S. economy has every chance of pulling further ahead of a stuttering Europe despite new battles to come in Washington over the government's budget and debt ceiling.

Far from sapping animal spirits, the last-gasp pact to avert an unprecedented U.S. default has raised hopes that politicians will learn from the public's hostile reaction to the standoff. The S&P 500 closed on Friday at an all-time peak of 1,744.50.

"There's probably more confidence now that next time around there won't be this kind of brinkmanship, that there won't be another shutdown and that there certainly won't be a default," said Ira Kalish, chief global economist for Deloitte, the professional services organization.

"So my expectations would be for a return of consumer confidence and of business willingness to invest and employ," he said.

The ‘next time around' is not far away. Congress has approved funding for the government until January 15 and has authorized it to keep issuing debt until February 7.

David Folkerts-Landau, group chief economist at Deutsche Bank, said the episode had inflicted deep wounds on the Republican party, which wanted changes in Democratic President Barack Obama's healthcare reforms, and on Congress.

"As a result, chances for meaningful progress in the upcoming budget negotiations have improved. Another government shutdown and debt ceiling showdown next year seem less likely," he said in a note.

FED ON HOLD FOR NOW   Continued...

Morning commuters walk on Wall Street in New York's financial district September 5, 2013. REUTERS/Brendan McDermid