EmailWill someone please call the super? We need a cleanup in the party aisle now that the Super Committee has made a mess of an opportunity to craft a bipartisan plan for deficit reduction measures.
Then again, this was a potential mess in the making for months considering it was the debt ceiling drama that gave birth to the Super Committee. We mused then that, "...if Congress couldn't make a grand compromise now, why should one be confident it will make one four months down the road when we are even deeper into the run for the White House in 2012?"
Now, we are left with questions as to whether the payroll tax cut and unemployment benefits will be extended; there are calls already to write legislation that would block automatic spending cuts, particularly for the defense department; meanwhile, the president has said he will veto any such legislation.
It is a real political mess right now, and while that isn't "new" news, the Super Committee's failure is a sad reminder that answers to our nation's problems won't come readily out of the nation's capital.
By the same token, quick and easy answers are not being found in the eurozone either and that is a major overhang for the market right now.
The latest example of frustration on that front was the costly auction Spain held for 3-month and 6-month bills. Those issuances saw yields of 5.11% and 5.23%, respectively, versus yields of just 2.29% and 3.30% at the prior auction of those same instruments.
The Spanish auction was a halting indication of sorts that restricted rebound efforts from yesterday's selloff and will be regarded by many as another signpost that the ECB needs to step up its involvement as a lender of last resort.
Strikingly, yields on sovereign debt haven't spiked today like some days past in the secondary market, so it will be construed that the ECB has been involved to hold the line.
That sense of things has served as a mitigating factor this morning that has helped stem follow-through selling efforts. Still, it is a taxing game the ECB is playing right now and that, in turn, is limiting any concerted buying interest in the eurozone sovereign debt market, as well as in other risk assets.
True to form, the S&P futures have faded back into negative territory after showing some modest strength overnight after both Standard & Poor's and Moody's indicated they are sticking with their credit rating outlooks for now for the U.S. despite the Super Committee failure.
A weaker-than-expected revision to the Q3 GDP report has applied some added pressure that has the S&P futures currently trading 0.5% below fair value.
Specifically, Q3 real GDP was revised to 2.0% from 2.5% with the second estimate. That revision, however, was due almost entirely to inventory flows. Real final sales growth, which exclude the change in inventories, remained unchanged at 3.6%.
The headline figure, however, has curtailed buying interest for a market that is looking for something super in the way of policy decisions, but continues to see a lack of superheroes.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
