U.S. equity futures traded slightly lower and European shares ticked down in early trade as investors feared the next upcoming cliff, that of the Debt Ceiling. Republicans look set to use the upcoming debate over increasing the debt ceiling to pass spending cuts and to even launch broad-based entitlement reform. Recall that the recent Fiscal Cliff deal focused mainly on the tax side of the equation but did not address spending cuts.
Top News
In other news around the markets:
- Former Italian Prime Minister Silvio Berlusconi struck a deal with political rivals to not run for Prime Minister in the upcoming elections in exchange for being nominated economy minister should the large Northern League Party win.
- Big banks were handed a gift by international regulators, as regulators agreed to postpone the imposition of the Basel III rules another year. The move allows banks one more year to reach liquidity ratios and also included some previously not included assets in the so-called Liquidity Coverage Ratio (LCR), making it easier for banks to reach LCR levels.
- Analysts at J.P. Morgan (JPM) see a return to massive healthcare M&A in 2013. The bank sees deals not only increasing in quantity but in size as well.
- S&P 500 futures fell 1.5 points to 1,460.10.
- The EUR/USD was lower at 1.3038.
- Spanish 10-year government bond yields rose to 5.09 percent.
- Italian 10-year government bond yields rose to 4.297 percent.
- Gold rose 0.31 percent to $1,654.00 per ounce.
Asian shares were mixed overnight with a slight downward bias as fears over the U.S. fiscal situation and the European economy weighed on markets. The Japanese Nikkei Index fell 0.83 percent and the Shanghai Composite Index rose 0.37 percent while the Hang Seng Index fell 0.01 percent in Hong Kong. Also, the Korean Kospi slipped 0.03 percent while Australian shares fell 0.14 percent on concerns that the RBA may not cut rates further.
European Markets
European shares were mostly lower, but only marginally so, overnight on fears that the ECB will not do enough later this week to stimulate growth and pull the continent out of its debt crisis. The Spanish Ibex Index rose 0.06 percent while the Italian MIB Index fell 0.09 percent and Greek shares fell 0.05 percent. Meanwhile, the German DAX slid 0.53 percent and the French CAC fell 0.67 percent while U.K. shares were lower by 0.3 percent.
Commodities
Commodities were mixed overnight as well with oil prices showing weakness and metals remaining mixed. WTI Crude futures fell 0.35 percent to $92.76 per barrel and Brent Crude futures fell 0.25 percent to $11.03 per barrel. Copper futures fell 0.85 percent to $366.20 per pound on Chinese weakness and on fears that the RBA will not cut rates to weaken its currency in an effort to boost exports. Gold was higher and silver futures rose 0.8 percent to $30.18 per ounce.
Currencies
Currency markets were in clear risk-off mode overnight as yen strength and euro weakness dominated markets. The EUR/USD was 31 pips lower at 1.3038 and the dollar fell against the yen to 87.88, a drop of 0.31 percent. Overall, the Dollar Index rose 0.11 percent on strength against the euro, the Swiss franc, and the pound, despite weakness against the yen and the Canadian dollar. It is important to note that the AUD/USD rallied back above 1.05 in early trade despite the Aussie falling against the yen. The biggest loser was the EUR/JPY, which fell 0.56 percent to 114.57.
Pre-Market Movers
Stocks moving in the pre-market included:
- Bank of America (BAC) shares rose 1.32 percent pre-market on the news that the Basel regulators are to delay harsh restrictions.
- KeyCorp (KEY) shares fell 4.25 percent pre-market following a downgrade at Zacks Research over the weekend but on no truly significant news.
- Hewlett-Packard (HPQ) shares rose 0.73 percent pre-market as the company is expected to sell off non-core assets to shrink its balance sheet and become more flexible.
- Microsoft (MSFT) shares rose 0.45 percent pre-market as the company announced that it had entered its largest ever contract with the Department of Defense to provide software and enterprise services to over 75 percent of DoD employees.
No notable companies are expected to report earnings Monday. Earnings season officially kicks off Tuesday, January 8 with Alcoa (AA) set to report earnings.
Economics
On the economics calendar Monday, the Treasury is set to auction 3- and 6-month bills as well as STRIPS. Overnight, focus will be on eurozone retail sales and the eurozone unemployment rate as well as German factory orders data.
By Matthew Kanterman