U.S. stock markets opened deep in the red Friday, as investors grew increasingly concerned about whether a deal will be reached in time to prevent the U.S. from going over the "fiscal cliff" at the end of the year. House Republican leaders abruptly canceled their so-called Plan B vote late Thursday, igniting waves of selling in overseas markets, which has now spread to U.S., and to a lesser extent Canadian, equities.
In early trading, the S&P/TSX composite index was down 26 points, or 0.2 per cent, at 12,362; the S&P 500 was down 14 points, or nearly 1 per cent, at 1,429; and the Dow Jones industrial average was down 124 points, or 0.9 per cent, at 13,187. Crude oil was down $1.28 at $88.85 (U.S.) and gold was up $3 at $1,648.90.
Research In Motion was having an especially brutal start to the trading day, down 17 per cent at the open on Nasdaq.
While RIM reported better-than-expected earnings, revenues and cash levels in its third quarter late on Thursday, it spooked investors on the issue of service access fees that wireless operators pay to use RIM's network. The company's reduced market power has forced RIM to cut these key revenue sources further by offering tiered pricing plans.
Analysts this morning are reacting. National Bank Financial's Kris Thompson downgraded RIM to "underperform" from "sector perform" and slashed his price target to $10 (U.S.) from $15. It was Mr. Thompson who sparked a rally in RIM shares on Nov. 22 by boosting his target to $15 from $12. Now, his revised target is even below the earlier $12 forecast. He cited the tiered pricing plans for today's action. Canaccord Genuity also cut its price target today by $1 to $9 as it reiterated a "sell" rating.
In post market trading on Thursday, RIM initially rallied on the quarterly results, but tumbled later when news about the service fees was revealed in an analyst conference call.
There was also news this morning that Nokia has settled its patent dispute with the BlackBerry maker in return for payments, which were kept confidential.
For markets overall, the focus is very much on the "fiscal cliff" negotiations, which have been thrown into turmoil and has the clock ticking down ever more ominously to the deadline at the end of this year. House members and senators now won't vote on budget issues until after Christmas, giving them just a few days to come to a deal before the toxic combination of tax cuts and spending increases takes hold Jan. 1.
Republicans, after a closed-door meeting on Thursday, said they did not have the votes needed to back the Plan B proposal, which would have allowed for higher tax rates on annual income above $1-million.
House Speaker John Boehner said in a statement that "now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff.”
Harry Reid, the Democratic majority leader in the Senate, isn’t likely to take the bait. The Senate is scheduled to be in session for a few hours Friday afternoon, according to the Washington Post, and then is set to break until Dec. 27. A spokesman for Mr. Reid called on Mr. Boehner to resume negotiations with President Barack Obama on a compromise.
In a news conference this morning, Mr. Boehner insisted he isn't walking away from talks with Mr. Obama and urged all parties involved to continue work ahead of the deadline.
But it's unclear how the drama will now play out, and the uncertainty is worrisome for market participants who largely assumed an agreement of some kind would be reached.
Despite all the noise, the two sides really aren't all that far apart. Mr. Obama has already conceded that tax rates can only be raised on incomes above $400,000, instead of his campaign pledge of a $250,000 threshold. Mr. Obama has also yielded on the issue of curbing Social Security benefits, a touchy issue for Democrats.
Economic data this morning was largely ignored by market participants amid the developments in Washington. The U.S. Commerce Department said personal income rose 0.6 per cent in November, more than the 0.3 per cent that was expected. Personal spending was 0.4 per cent, matching expectations.
Here in Canada, gross domestic product in October rose 0.1 per cent. That followed a flat reading in September and a 0.1 per cent contraction in August.
In another report, Statistics Canada said consumer prices were up 0.8 per cent year-to-year in November, following increases of 1.2 per cent in October and September. Core inflation was up 1.2 per cent. The data were close to economists' forecasts.