By Carlos Guillen
Equity markets are slowly making a move to the downside as investors appear to be taking profits on the increasing belief that the Fed will taper in light of decreasing political turmoil over a fiscal budget deal.
With very little in terms of hard economic data out today, investors are focusing on Washington and on the fact that yesterday there was a bipartisan agreement on a plan to settle the fiscal budget and avoid another government shutdown. Senate Budget Committee Chairwoman Patty Murray (Democrat from Washington) and House Budget Committee chairman Paul Ryan (Republican from Wisconsin), who are the lead negotiators on the agreement, detailed the specifics of the budget proposal at an evening press conference after the close of trading yesterday. According to the proposal, there would be $63 billion put back in place that had been cut by the so-called sequester. Officials said the increases would be offset by a variety of spending reductions and increased fees elsewhere in the budget totaling about $85 billion over a decade, leaving enough for a largely symbolic deficit cut of $23 billion over the next decade.
This rather tentative bipartisan agreement has put some pressure on equity trading today as investors worried that this U.S. budget deal could strengthen the case for the Federal Reserve to taper its asset purchases at its meeting on Tuesday and Wednesday of next week. While most reports suggest the budget deal should pass, there is plenty of room for criticism on both sides of the aisle. The deal will go to the House and Senate for approval later this week, so we will have to sit tight and see what happens. Failure to get approval may cause markets to shake, but there is still more time as Congress has until January 15 to pass a new budget; failure to do so by then would certainly trigger another partial government shutdown, and that would simply be insane.
At the moment equity markets remain in losing territory but seem to be gaining from the lows of the day, with the Dow Jones Industrial Average losing as much as 110 points at its lowest point, but currently down 80 points. The lack of economic data is certainly not giving stocks a firm direction, but there is the Treasury budget out later in the session at 2 p.m. Let us see if that gives markets a push.