Today is March 1. The first day of a new month often has a positive bias as new money gets put to work, particularly in an upward-trending market. That said, the equity market is indicated to open about 0.4% lower.
This isn't a typical March 1, however. The sequestration deadline is today (technically at midnight) and just about every Washington source is reporting that it is unlikely an eleventh-hour deal will be struck to avert the sequester. President Obama and Congressional leaders are meeting this morning to try to sort things out, but that is shaping up to be as awkward a meeting as running into your ex at a bar the night after you broke up.
While the causality for the weakness in the futures market sounds reasonable as it relates to the sequester, it is almost laughable to buy into such reports today considering the market has been rallying in front of the sequester deadline knowing full well that the sequester was likely to occur.
This is not to say the sequester isn't impactful. We have expressed our concerns about the market not appreciating the adverse economic effects of fiscal austerity. The point is that the sequester isn't the basis for why the S&P futures are trading lower at the moment.
The basis for the negative disposition has something to do with fiscal austerity, only it relates more today to eurozone austerity than it does to US austerity.
Specifically, PMI reports out of the EU were mixed, but the one from the UK grabbed its share of attention as it slipped to 47.9 from 50.5. In turn, China indicated its official PMI report decelerated to 50.1 in February -- a five-month low -- from 50.4 in January.
The more salient report for all to see, though, was the report that the unemployment rate in the eurozone rose to a record-high 11.9% in January from 11.8% in December. It is a reminder that fiscal austerity bites, particularly when it is paired with tax increases.
It is a tacit warning so to speak that the return of growth momentum in the second half of the year shouldn't be thought of as such a sure thing. Developed economies are stuck in a rut of austerity from which it isn't easy to achieve escape velocity, even with central banks pushing the car from behind.
Major bourses in Europe are all in red figures with declines of 1.0% or more a common sight.
That weakness, combined with yesterday's disappointing finish and the renewed growth concerns that are evident in declining commodity prices, has buyers sticking to the sidelines for the time being.
The Personal Income and Spending report for January isn't prompting them to jump off the sidelines either.
Influenced by the impact of the payroll tax hike and tough comparables to December when personal income increased as people sold stock ahead of expected tax increases, personal income declined 3.6% in January. That is down from the 2.6% increase reported for December and was below the Briefing.com consensus estimate that called for a 2.4% decline.
Disposable income decreased 4.0% in December. Excluding the special factors cited above and others, the BEA said disposable income increased 0.3% in January.
Personal spending was up 0.2% while core PCE prices were up 0.1%. Real PCE then rose 0.1% in January.
The concerning factor with the January report is that employee compensation declined 0.4% while the personal savings rate dropped to 2.4% from 6.4%. This sets up for some potentially disappointing spending numbers for February.
This is a busy day of economic reporting. The final reading for the February University of Michigan Consumer Sentiment Index (Briefing.com consensus 76.3; prior 76.3) will be released at 9:55 a.m. ET and will be followed by the February ISM Index (Briefing.com consensus 52.4; prior 53.1) and January Construction Spending (Briefing.com consensus 0.5%; prior 0.9%) reports at 10:00 a.m. ET. Auto and truck sales for February will be released throughout the session.
There will be continued talk of the Dow and S&P 500 flirting with all-time highs, but it appears at the moment that the market will be marching backward to begin the month of March.