The "fiscal cliff" relief rally that saw the S&P 500 enjoy its biggest gains in a year has quickly run out of steam, with European equities and U.S. stock index futures modestly lower this morning.
Markets are sobering up after celebrating the 11th-hour deal in Washington that will prevent hefty tax increases and spending cuts from immediately taking hold. Major U.S. indexes jumped by at least 2.4 per cent on Wednesday, even as many economists, analysts and skeptical investors were warning it appeared to be an overreaction to a deal that hardly put the U.S. fiscal house in order for the long term.
While the issue of tax cuts was largely settled, the automatic spending cuts were only delayed by two months and U.S. lawmakers still face acrimonious debate on the debt ceiling. Near-term risks may have been eliminated, but there's still considerable uncertainty about a bigger U.S. budget package for the future that may involve more political brinkmanship and gridlock in the U.S. capital. As such, the sequel to the "fiscal cliff" drama isn't very far away.
Traders are looking to Friday's non-farm payrolls report in the U.S. as the next major driver for U.S. market direction. There were some hints on the employment picture released this morning, with a private payroll jobs report showing more job gains than expected and initial jobless claims rising last week more than expected.
Some employment reports for December were released early this morning in Europe, and they were relatively encouraging. Germany's jobless figures rose by 3,000, lower than the 10,000 job losses economists were predicting. And the number of people out of work in Spain fell by 1.2 per cent, marking the first monthly decline since July as the service sector stepped up hiring in the run-up to Christmas.
Another focus today will be on the release of minutes this afternoon from the Federal Reserve's policy meeting on Dec. 11-12. It set unusually stringent conditions on interest rates at that time, pledging to keep them at near-zero as long as the unemployment rate is above 6.5 per cent and inflation is tame.
Now, here's what else you need to know this morning.
U.S. futures: S&P 500 -0.2 per cent; DJIA -0.2 per cent; Nasdaq -0.1 per cent
Hong Kong's Hang Seng index +0.37 per cent
Shanghai composite index (closed)
Japan's Nikkei (closed)
London's FTSE 100 -0.04 per cent
Germany's DAX -0.28 per cent
France's CAC 40 -0.53 per cent
WTI (Nymex Feb) -0.53 per cent at $92.63 (U.S.) a barrel
Gold (Comex Feb) -0.40 per cent at $1,682.10 (U.S.) an ounce
Copper (Comex Mar) +0.21 per cent at $3.74 (U.S.) a pound
Canadian dollar down 0.0010, or 0.10 per cent, at $1.0136 (U.S.)
ECONOMIC INDICATORS TO WATCH:
The ADP private payroll employment report showed job gains of 215,000 in December, beating forecasts for a rise of 150,000. It marks a sharp rise from November's private job gains of 118,000.
U.S. initial jobless claims for last week rose 10,000 to 372,000, up from the previous week's 350,000 and more than the 363,000 economists were expecting.
(2 p.m. ET) FOMC releases minutes from latest policy meeting
STOCKS TO WATCH:
Brookfield Asset Management and fund manager Pershing Square have resolved a dispute over General Growth Properties, owner of regional shopping malls in 41 states. Pershing has dropped efforts to have General Growth sold and Brookfield has agreed to buy GGP warrants held by Pershing.
Major automakers are releasing their December sales figures.
Hormel Foods Corp. is buying Skippy peanut butter from Unilever for $700-million.
Limited Brands, Costco, and Target are among retailers releasing same-store sales for December.
Gap Inc. has approved a new $1-billion share repurchase program and said it is buying luxury fashion retailer Intermix for $130-million (U.S.).
Safeway's CEO Steve Burd will retire in May after more than 20 years with the grocer.
Earnings today include Family Dollar Stories Inc.
THIS MORNING'S TOP INVESTING READS ON THE WEB:
A year ago, Oliver Pursche, a portfolio manager with the GMG Defensive Beta Fund, offered us here at the Globe and Mail his 10 market predictions for 2012. The Canadian Couch Potato blog has a report card on how many of his predictions actually came true.
A growing number of professional investors are betting that the craze for bonds has gone too far, perhaps dangerously so.
What investors can learn from weather forecasts.
To be a successful trader, you need to focus on one critical aspect of the market at a time.
Big-time insiders were the major beneficiaries of the flood of special dividends announced late last year.
Top merger and acquisition trends to watch for in 2013.
A battle of the activists: Robert Chapman of Chapman Capital is taking on Pershing Square's Bill Ackman over his recent three-hour presentation on why he's short of multi-level marketer Herbalife.
In a world full of risk, why are investors so calm?
The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities