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Pre-Market Primer: Stocks Down as Sequester Looms


European economic weakness doesn't help, either.

Stocks are pointing south today as investors prepare for automatic cuts in federal spending and global economic data disappoints.

Today, the infamous sequester takes effect. Assuming nothing passes in Congress today, which many market watchers have been expecting, $85 billion of government spending gets yanked out of the economy. Democrats and Republicans have yet to replace the automatic cuts with a more palatable solution. Congressional leaders' meeting today with the president isn't likely to lead to one.

This morning, it was reported that in January, US personal incomes fell 3.6%. A 2.1% drop was expected after a special dividends-fueled surge in December 2012. Consumer spending rose 0.2% over December.

Later this morning, the US Manufacturing PMI Index is expected to hit the flash reading of 55.2, a healthy expansion. The University of Michigan/Reuters consumer sentiment survey is expected to advance to 76.3.

Before the opening bell, Dow (INDEXDJX:.DJI) futures are 0.43% lower at 13,973. Futures on the S&P 500 (INDEXSP:.INX) slipped 0.57% to 1,504.20 and Nasdaq (INDEXNASDAQ:.IXIC) futures fell 0.47% to 2,723.75. Tokyo ended the day higher, but European indices dropped on economic data.

Italy's parliament is still hung. Center-left Pier Luigi Bersani said today that he is against forming a coalition with Silvio Berlusconi's center-right party. Protest candidate Beppe Grillo ruled out working with Bersani. This leaves the center-left with one option: convincing President Giorgio Napolitano that he can rule without a majority in the Senate. The situation is so ugly that some are talking about Italy exiting the eurozone.

Against that backdrop, Italy's economy continues to slide. Unemployment is at a record high of 11.7% in February, up 0.4 percentage points from the month before. Youth unemployment rose to 38.7% Manufacturing PMI fell to a 19-month low of 45.8 in February, indicating that the contraction in the sector was steeper than in January. (A reading below 50 signals negative growth.)

Manufacturing PMI and unemployment in other European countries wasn't pretty either. The UK sank to 47.9 from 50.5, the first contraction since November 2012. The eurozone's collective unemployment rate rose to 11.9% in January. Austria and Denmark are best off with 4.9% and 5.3% unemployment. The inflation rate fell below the 2% target. Given the continued gloom and sleight inflation, the European Central Bank has room to push for more aggressive monetary policy.

China's official PMI reading sank to 50.1 from 50.4 last month, largely a result of the weeks-long Chinese New Year celebration.

In corporate news, Groupon (NASDAQ:GRPN) shares stemmed losses after the company ousted Chief Executive Officer Andrew Mason. On Wednesday, the company delivered a loss where a slim profit was expected. The stock advanced 3.31% this morning.

Gap (NYSE:GPS) net profit rose 61% to $351 million, or $0.73 per share, beating consensus estimates. Revenue for the holiday quarter rose 10.5% to $.73 billion. Shares of the retailer rose 3.28%.

Twitter: @vincent_trivett
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