Investors may feel as if they are still just emerging from a fug of mince pies and turkey but the impact of the US fiscal cliff negotiations has hit surprisingly quickly at the start of the new year. President Obama had only moments to enjoy the third quarter’s promising GDP figures before being plunged into tortured debate with the Republicans over imminent spending cuts and tax rises. He even had to cut short his Hawaiian holiday.

But it seems to have been worth it and he has his resolution – or at least a resolution of sorts. The Financial Times described it as a fiscal ‘mini-deal’, which seems apt. Obama succeeded in breaking the multi-decade Republican commitment to voting against tax rises but had to compromise on a higher starting point for top-earner tax rates. The strong Republican support for the deal augurs well for future debate but this is really only the beginning of the story rather than the end.

The deal in its current guise will still exert a drag on the US’s GDP. The average family’s tax bill is currently predicted to increase by $1,000 (£617) in 2013, which cannot fail to put pressure on consumer spending. However, the fiscal cliff’s impact is now considered by most analysts to be muted rather than catastrophic.

The political drama is likely to provide the backdrop for markets until at least March as the warring US parties now turn their attention to spending cuts. This is where the tougher decisions lie. Tax breaks for the wealthy are really only going to win or lose the support of the wealthy and, almost by definition, there are not that many of them. Spending cuts, on the other hand, are a more loaded issue. Any cuts need to be balanced with prudent incentives for growth and no government has yet pulled off that particular trick.

The market’s early response to the deal gave some clues as to the areas most vulnerable to any fluctuations caused by the fiscal cliff negotiations over the next few months. This may be good or bad, depending on the ultimate outcome.

The index that rallied most after the news was the Nasdaq, which was up more than 3% on the day. The high-beta markets of France and Germany also leapt higher while the FTSE 100 was middling, rising 2.2%. However, Japan and China were notable laggards. The other consideration for investors will be currency – the US dollar is likely to come under pressure until the situation is resolved, weakening the value of US assets.

JANUARY 2013

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