US downgrade fears resurface as fiscal cliff deal disappoints

Investment strategists and asset allocation heads have labelled last week's fiscal cliff deal a ‘short-term fix', which could spark a fresh round of sovereign debt downgrades in the coming months.

The eleventh hour deal averted $600bn of tax increases and spending cuts which threatened to push the US into recession. Global markets rallied strongly once the agreement was reached, with the Dow gaining more than 300 points last Wednesday.    However, US policymakers failed to agree terms to raise the US’ debt ceiling.  Strategists argue the scaled down deal will mean short-term euphoria is unsustainable and investors should be braced for a bout of volatility in equity markets, given another political showdown is imminent in the coming weeks. Mike Turner, head of global strategy ...