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Congress Reaches Budget Deal to Prevent Government Shutdown


Today's financial recap and tomorrow's financial outlook.

Last night, Congressional negotiators reached a budget deal for fiscal year 2014. In the deal, spending cuts would be reduced by $40 billion in 2014 and $20 billion in 2015, which should lower the fiscal budget deficit by $20-$23 billion. The deal will avert a government shutdown next month, if it is passed by Congress. A spokesman for Senate Majority Leader Harry Reid said that the Senate would vote on the compromise next week. Most importantly, no deal was reached on extending the debt limit, which should be hit in March or April of next year.

Chinese stocks were hit hard last night on rumblings that the government would cut its 2014 growth target to 7% from 7.5%. Commentary from the China Securities Journal, considered the mouthpiece of the PBoC, suggested that the government would wind down proactive fiscal stimulus measures. The Shanghai Composite (SHA:000001) was down 1.49%.

The major newswires reported this afternoon that former head of the Bank of Israel, Stanley Fischer, was the lead candidate for Vice Chair at the US Federal Reserve. Fischer mentored current Federal Reserve Chair Ben Bernanke and ECB President Mario Draghi in their doctorate programs. Fischer is not the biggest fan of forward guidance, which is a tool the Fed uses to tell the market where overnight interest rates will be in the future. US Treasuries came under pressure following this announcement.

US equity markets had their worst down day since November. The S&P 500 (INDEXSP.INX) fell more than 1% and small caps continued to underperform. The Russell 2000 (INDEXRUSSELL:RUT) fell 1.63% and high-beta tech stocks also underperformed. All 10 basic sectors in the S&P 500 declined, but the worst performance came from the materials sector. Consumer staples stocks were the top-performing sector, only declining 0.29%. The strength in the yen was also cited as a reason for the US equity weakness.

Tomorrow's Financial Outlook

November retail sales will be released tomorrow morning. Thus far, consumers have been doing their holiday shopping earlier in the season, so economists are forecasting a sizable gain in the month's sales. Month-over-month gains are expected to rise 0.6% after rising 0.4% in October. Sales ex-auto and gas are expected to rise 0.3%. Also scheduled to be reported are November private business inventories, import and export prices, and last week's jobless claims.

Overnight, Australia will report its November employment rate and the eurozone will release November industrial production data. Additionally, the Swiss National Bank will release its monthly monetary policy statement. Lastly, Mario Draghi is scheduled to speak at the EU Parliament debate in the morning in Europe.

The only notable earnings report will come from Ciena (NASDAQ:CIEN).

Twitter: @Minyanville

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