The debate over whether the U.S. will or will not go over the fiscal cliff already dominates the financial markets and might start to dominate the consumer sector soon. “Only 25 more shopping days until we go off the Fiscal Cliff,” one funny mortgage trader said. People might plan holiday parties with the caveat that they will be cancelled if we go off the cliff. People might contract to buy a car or a house as long as the deal can be voided if the cliff takes place. They might also buy furniture, clothes or jewelry as long as they can get a full refund if the U.S. plunges off the cliff. Will doctors and hospitals take patients and schedule procedures only if they are assured of getting paid? Will it begin to affect registrations for schools, ballet lessons and gyms? Will people demand paychecks in advance? While the White House continues to make positive statements that a deal can be reached, they also admitted that the Office of Budget and Management put out an order earlier this week telling federal agencies to prepare for possible spending cuts. And the difficult thing for the financial markets is knowing who to believe and who not to believe. Are the players just putting out happy talk to sound confident? Are the naysayers talking tough to scare the opposition into submission? More importantly, is anyone doing or saying anything constructive in private? There was news Wednesday that 100 members of Congress finalized a letter to the Joint Select Committee on the Deficit Reduction saying “everything should be on the table and the goal should be closer to $4 trillion rather than the $1.2 trillion in deficit reduction required under the Budget Control Act.” This letter finalizes the announcement they made Nov 2, It sounds like progress, but is it? The Treasury market rallied in mid-morning as stocks dove. The 10-year note hit a low yield of 1.576%. No one was quite sure what prompted the move in stocks or bonds but it is proof that the Treasury market is very nervous. The issue quickly returned to 1.59% as the market could not hold the higher levels. There is just too much uncertainty on either the up or the down side due to the fiscal cliff for the market to move too far from home right now. Another piece of the puzzle will be revealed this Friday when the monthly jobs report is released. Economists are calling for gains in the 70,000 to 112,000 area. The ADP private payroll date showed a gain of 118.000 jobs in November. Traders said the ADP report also said, “Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls. The manufacturing, retailing, leisure and hospitality, and temporary help industries were hit particularly hard by the storm. Abstracting from the storm, the job market turned in a good performance during the month.”
EasyForexNews Research Team