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By Carlos Guillen

Stocks got off to a bad start at the beginning of today's trading session, fueled by weak markets in Europe and certainly not assisted by worse than expected factory orders results.

Apparently the news circling in Europe is that there is corruption in Spain. Adding to this is a banking scandal and elections Italy. This is shaking markets in Europe with the FTSE, DAX, and CAC all down 1.58, 2.49, and 3.01 percent, respectively: more on this below.

Perhaps serving to add to the market pressure today was that factory orders landed below expectations. According to the U.S. Census Bureau, new orders for manufactured goods during December increased month-over-month by 1.8 percent to $484.8 billion, worse than the Street's consensus estimate calling for a 2.4 percent month-over-month rise. Negatively affecting factory orders was a slump in demand for electrical equipment, appliances, and components, which had orders declining by 3.1 percent month-over-month. Concurrently, new orders for consumer goods declined by 0.1 percent, after decreasing by 1.2 percent in the prior month, and non-defense capital goods (excluding aircraft) declined by 0.3 percent, after increasing by 3.3 percent in the prior month. These orders are considered a proxy for future business investment in items such as computers, engines and communications gear, so a decline in these increases the negative sentiment from the less than expected increase in factory orders.

At the moment it is apparent that the hike in payroll taxes and deteriorating consumer confidence will serve as drivers for companies to take preemptive measures in their own capital investments. Moreover, a global economic slowdown is also threatening overseas sales, further exacerbating capital spending reductions. However, there has been much noise around economic data recently; as such, it is difficult to ascertain a trend at the moment.

Scandal Rocks Spain and Italy
David Urani

All of a sudden Europe is looking shaky again, and that's because the governments in both Spain and Italy are now under fire. For one, Spanish Prime Minister Mariano Rajoy is on the hot seat after being accused of illegally taking $375,000 from a political slush fund. This matters for virtually all of the world markets because it's Rajoy's government that has been able to carefully construct an emergency plan with the rest of the EU, including unpopular austerity programs as a part of their deal. And speaking of popularity, this scandal seems to be aggravating the voting public even more; polls say the majority of voters want to call an election. In a nutshell, a shakeup in the Spanish government risks the already shaky situation with Spain and its promises to the rest of Europe, re-kindling the idea of their bailout unraveling.

And it's a similar situation in Italy today. The situation there is that Monte Paschi (which is the world's oldest bank) managers admit that fishy derivatives contracts were created to cover up hundreds of millions of euros of losses. One of the issues with this includes the fact that Mario Monti's government bailed them out with taxpayer money, and it also has close ties with leaders in their party. While government corruption may or may not be involved, it's certainly a notable issue in the upcoming Italian elections. And on that note, Silvio Berlusconi has been gaining in the polls, to within six percent of the lead, and this news can only help his cause.

Another side plot to watch is ECB president Mario Draghi's involvement. He had been the president of the Italian central bank when evidence began to turn up for the Monte Paschi situation. One must now wonder why he did nothing about it, and if the EU's confidence in him will be dented.

A win by Berlusconi would mean a likely rollback of tax increases and austerity that Monti put in place to comply with their European bailout. So that puts the governments both Spain and Italy on loose footing, as well as the whole bailout situation in the European Union. Italy's FTSE MIB is taking a 4.5% hit (including aftermarket), while Spain's IBEX is off 3.8%.