Mitt Romney victory could cause US markets to soar

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The Dow Jones could spike 500 points if Mitt Romney wins today's US Presidential election, according to a leading thinktank - but the effect on the economy would not be as strong as his policy platform suggests.

Investors and analysts predict that Barack Obama will secure a second term in office later today as the US goes to the polls . But if Mitt Romney manages a surprise win it could prompt a sudden spike in the Dow Jones (DJI: ^DJI - news) , said the the Centre for Economic Business Research (CEBR).

CEBR head Douglas McWilliams told Sky News that the effect could move markets significantly, but would be unlikely to have as large an effect on the economy as Romney's campaign has claimed: "A President Romney has promised a radical departure, with bigger budget cuts and tax cuts. And he would be perceived as pro-business which might boost the financial markets.

"I would be surprised if a President Romney changed the economy as much in the short term as his policy platform suggests. Though there would be an initial market bounce of perhaps 500 points on the Dow (NYSE: DPD - news) because a Romney victory is not priced in.

"In the longer term there is more scope for a President to make a difference and we could see the option of low spending and low taxation applied in a major Western economy. It could prove an exciting experiment," he said.

It is thought that Mitt Romney will be less likely to support further quantitative easing in the US, possibly forcing US Federal Reserve chairman Ben Bernanke to resign early before his term ends at the start of 2014.

“My guess is that Bernanke wishes to step down anyway and that the need for additional QE is diminishing unless the world economy takes another step downwards,” said Mr McWilliams. "What is different is that in the US, QE has worked; in the UK it has been much less effective.

"Bank lending in the US is growing for both business and households. Even property lending, which for a long time had been in the doldrums and was holding back the US economy is growing.

"The country is gradually becoming self-sufficient in energy which is very cheap by Western standards. Because of increased drilling, oil is a fifth cheaper than in Europe (Chicago Options: ^REURUSD - news) while shale gas is available at the equivalent of a quarter of the price of oil."

The Dow Jones closed up 0.15pc at 13,112.44 last night ahead of election day.