EmailS&P futures suggest a very modest up open. The fiscal cliff negotiations still hang over the market as the dominant issue, but today the talk is all about retail on one of the busiest shopping days of the year.
There are no US economic releases or earnings reports, but there are some international developments of note.
The private HSBC manufacturing survey for China for October was 50.4, the first time it has been above 50 in over a year. A reading over 50 is intended to indicate growth, so this is a positive sign, but hardly impressive in an economy that is presumably growing rapidly. S&P confirmed France's debt rating of AA+. Moody's had recently downgraded French debt. French economic growth had stalled even before the European recession began to worsen in the fourth quarter, as industrial production in the euro-zone plunged 2.5% in September.
Meanwhile, European Union leaders are meeting to discuss how much the prospering countries will support the struggling countries, and how much the farming lifestyle should be subsidized. The numbers are small compared to IMF and European Central Bank actions, but the underlying issues are the same and the tempers are flaring.
As to the fiscal cliff, market participants seem to be hanging on to high hopes of a glorious compromise based on the comments from politicians during initial meetings. Every politician wants to put a sunny spin on early talk, however, otherwise the blame for any failure will fall disproportionably on him for not having a proper attitude.
The discussions will soon enter a phase when both sides will have to show more spine, if only to strengthen their position going into the real negotiations. Evidence of partisan digging-in could rattle the markets. And, there is a long, long, long way to go before any compromise is reached.
Furthermore, it isn't clear what "compromise" could help the financial markets much other than keeping any increase in capital gains and dividend tax increases in check. A compromise must entail both spending cuts and tax increases in order to address the huge fiscal deficits projected for future years. That is what the current fiscal cliff legislation that the markets fear already does.
The reality is that there is no easy answer to the fiscal issues - either taxes go up, spending gets restrained, or the politicians "kick the can down the road" on the debt. There is no magic solution that arrives just by having politicians "rise above partisanship to do the right thing." There are difficult negotiations and tough decisions coming. Having a politician give a thumbs up after coming out of a meeting doesn't change that. The stock market probably has some difficult days ahead as time runs out and the negotiations become tense.
Today, however, it will all be about the size of the crowds at the malls. There are always projections for retailers based on Black Friday trends, and they often prove wrong.
Dick Green
Chairman and Founder, Briefing.com
