With the US economy growing at 3 percent, there is no need for additional easing, says Anil Prasad, Global Head-FX & EM local markets, Citi. He sees the dollar-yen end this year above 100 and next year it will probably be in the 110-115 range due to the huge increase in the monetary base in Japan.
While many analysts really don`t see much that could derail the market`s bull run between now and the end of the year there are some warning signs that investors seem to be ignoring.
Obama on Thursday signed into law a bill that would suspend a USD 16.7 trillion cap on the national debt until early February, when it will reset to whatever level the debt has reached.
Dagong, one of China's top four ratings agencies, cut its rating on US sovereign debt to "A-" from "A" on Thursday, maintaining a negative outlook. It argued that the deal reached by Congress to end the partial government shutdown and raise the debt ceiling will only avert a crisis temporarily.
The day before, Obama signed a compromise deal passed by the House and Senate after weeks of bickering. It extended the debt ceiling until until Feb. 7 and reopened the government by approving funding only until Jan. 15, lifting what he described as the "twin threats to our economy" for now.
Emerging markets will continue to do well considering there are five more months of stimulus push before the Fed can consider tapering. Though, according to Nick Parsons, head of research, UK & Europe, National Australia Bank, the fears of emerging markets getting hit if and when the Fed starts tapering is overdone.
Richard Gibbs, global head, Macquarie Securities said with the latest development on the US debt ceiling issue, it is likely that the US Federal Reserve might push its QE tapering plan to next year.
Adrian Mowat of JPMorgan says stability in currency and good monsoon will be a positive for India. The corporate sector too has come out with decent set of numbers so far despite it being a fairly choppy period.
Chaotic negotiations to end the US fiscal impasse failed to produce a deal, and left Congress and President Barack Obama desperately searching for a way to reopen the government and raise the country's debt limit ahead of a Thursday deadline.
Analysts now see the US Fed delaying the 'tapering' of its asset-purchase program which means the US dollar has slipped after a rally in mid 2013, and investors are opting for sterling and the euro now. The pound was trading at USD 1.597 on Monday morning after starting the year at USD 1.624 and collapsing to a low of USD 1.486 in July.
Many analysts think the United States would at least try to keep making bond payments in an effort to keep investors from panicking.
The plan under discussion would promptly end a partial government shutdown about to enter its third week. It also would raise the debt ceiling by enough to cover the nation's borrowing needs at least through mid-February 2014, according to a source familiar with the negotiations.
Amid an ongoing debate about the impact of the US even temporarily breaching its statutory borrowing limit, the economist known as "Doctor Doom" warned that breaching the USD 17 trillion debt limit could tip the economy into a new down curve.
Generally, people believe that the US debt ceiling issue will resolve itself. It is just the uncertainty at the moment, says Mark Priest of ETX Capital.
Shane Oliver of AMP Capital says that resumption of talks among the US senate officials is a positive, but the US government shutdown won't end before October 17 deadline.