WASHINGTON — Leaders of the Congressional committee charged with finding at least $1.2 trillion in deficit reductions conceded on Monday that panel members had failed, setting up what is likely to be a yearlong political fight over the automatic cuts to a broad range of military and domestic programs that would go into effect starting in 2013 as a result of their inability to reach a deal.
The S&P 500 had a bad Monday, losing 1.86%, but that was well off the -2.67% intraday low. So it could have ended much worse, especially after the general market slaughter in Europe, where Germany’s DAX was down 3.35%, France’s CAC 40 lost 4.41% and the Milan index collapsed by 4.74%.
The S&P 500 is now down 5.14% for the year and is 12.51% off the interim high of April 29. It has fallen below the 1200 benchmark and is about 14 points below its 50-day moving average of 1207.40, which technicians would have seen as potential support. From a basic technical standpoint, the next support is down around the 1100 point level, which was the vicinity of the interim low on October 3rd (1099.23 to be precise). Hoever, my take is that the crisis in the eurozone and the complete failure of the congressional “super committee” are the real drivers of this market, not the technicals.
From an intermediate perspective, the index is 76.3% above the March 2009 closing low and 23.8% below the nominal all-time high of October 2007
Hewlett-Packard Co. (HPQ) forecast first- quarter profit that missed analysts’ estimates, a sign that Chief Executive Officer Meg Whitman may struggle with the slump that led to the ouster of her predecessor, Leo Apotheker.
Profit for the quarter ending in January will be 83 cents to 86 cents a share, excluding some items, the company said in a statement. The average estimate of analysts surveyed by Bloomberg was for $1.11 a share.
Hewlett-Packard is suffering as some consumers shun personal computers and businesses curtail spending on technology services. Apotheker was replaced by Whitman on Sept. 22 after slashing forecasts three times in less than a year and jarring investors with a decision to explore spinning off the PC unit.
Spanish yields are rising today, along with those of Italy. The crisis is beyond the power of individual governments to solve on their own; coordination is key.
Which makes one piece of news out of Brussels today seem at least somewhat auspicious. The European Commission has put together a white paper, to be released this week, proposing the creation of euro bonds. It appears that three different options are discussed, moving along the spectrum of shared risk. In those least ambitious version, the combined governments of the euro zone would provide some guarantee for the newly issued bonds of national governments. In the most ambitious scheme, the euro zone would approve individual budgets, which would be financed through euro bonds.
The paper is best understood as just another step forward in the long process of tighter fiscal integration within the euro zone. The problem, of course, is that Europe wouldn’t appear to have that much time to put together such a substantial move toward euro-wide risk sharing. In the meantime, the single currency suffers from a severe chicken-and-egg difficulty. The European Central Bank is reluctant to save the euro zone in the absence of a real fiscal plan. Better-off member states are reluctant to move toward that end without a mechnism to make sure that they’re protected against moral hazard and resulting misbehaviour. But peripheral economies are struggling to demonstrate the credibility of their reforms and fiscal consolidation amid economic and financial collapse. A measure of trust is needed to get a solution moving, but trust is in short and diminishing supply.
Meanwhile, pressure continues to build. The bank run across the periphery is gaining steam. For the moment, German banks and the German state are receiving much of the capital flow from the periphery, but that may not last.
At 8:30 a.m. ET, the Commerce Department takes another look at third-quarter GDP to see if there’s any growth it missed the first time it rooted around under the couch cushions. Economists think not, expecting a second read of 2.3%, down from a first estimate of 2.5%. This report also brings us our first look at corporate profits for the quarter. Strong to very strong, is the forecast for those.
At 1:00 p.m. Minneapolis Fed President Narayana Kocherlakota says something hawkish.
At 2:00 p.m. we get minutes from the most recent FOMC policy meeting. They will be parsed for any sign of a hint of a promise of a hope of QE3.
Before the bell we get results from:
- Campbell Soup
- Hormel Foods