Although nothing new has been released on the Fiscal Cliff, particularly following a weekend meeting between both House Speaker John Boehner and President Barack Obama, party sources continue to note that “the lines of communication remain open”. Concessions, however, seem to be surfacing. Particularly, Republican party members are seemingly more willing to accept a mid rate when it comes to higher tax rates – rather than the maximum rate of 39.5%. Instead, speculation is now targeting a rate between 35% and 39.5%.
Additional topics still under discussion include , other than raising tax rates for higher earners and potential cuts to entitlement programs like Medicare, is a “permanent” extension for the $16.4 billion national debt ceiling and additional economic stimulus for the unemployed and small businesses. The debt ceiling extension is anticipated to alleviate concerns ahead of a potential discussion early next year.
All in all, European economic data was rather disappointing on the session. Both French and Italian industrial production fell for the second straight month in October. French industrial output dipped slightly by 0.7%, while Italian output slumped by 1.1%, a followup to September’s 1.3% slide.
Investor sentiment in Europe additionally remained depressed in December, although improving for the fourth consecutive month. According to Sentix, index readings improved to -16.8 from last month’s -18.8 reading.
Taking the cake, however, is the stepping down of Italian Prime Minister Mario Monti. The resignation, prompted last week by a no-confidence vote, leaves open the possibility of former PM Silvio Berlusconi running for a fifth term – complicating European debt matters. Berlusconi is expected to run on a ticket that involves the repeal of recent austerity measures. The concerns have hit Italian 10-year bond yields particularly hard, with yields surging 29 basis points to 4.82%, while Italian stock markets dove by much as 3.1% on the day.
With short term resistance at 1.3000, Euro upside at the momentum seems weak. As a result, further downside towards 1.2800 is anticipated in the near term. Any break above the psychological figure would prompt an extension higher towards the 1.3125 December 5th high.