North American stock markets are in store for a nasty open this morning, after U.S. stock index futures plunged suddenly Thursday night on news that House Republican leaders abruptly canceled their so-called Plan B vote.
The action has thrown the "fiscal cliff" negotiations further into turmoil and has the clock ticking down ever more ominously for an agreement to be reached by 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.
U.S stock index futures are down more than 1 per cent this morning and overseas markets are all in the red. The TSX will have other factors, too, that will pressure stock values. Crude oil is down around 1 per cent, which will hurt energy issues, and Research In Motion Ltd. is likely to plunge at the open by double digits, percentage-wise.
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 10 per cent after news about the service fees was revealed in an analyst conference call. RIM's shares are down about 12 per cent in the premarket today.
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 the market overall, the spotlight will stay clearly focused on Washington. 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.
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.
Now, here's a look at what else you need to know this morning.
MARKETS:
Equities:
U.S. futures: S&P 500 -1.5 per cent; DJIA -1.4 per cent; Nasdaq -1.2
Hong Kong's Hang Seng index -0.68 per cent
Shanghai composite index -0.71 per cent
Japan's Nikkei -0.99 per cent
London's FTSE 100 -0.79 per cent
Germany's DAX -0.72 per cent
France's CAC 40 -0.51 per cent
Commodities:
WTI (Nymex Feb) -1.08 per cent at $89.16 (U.S.) a barrel
Gold (Comex Feb) +0.07 per cent at $1,647.00 (U.S.) an ounce
Copper (Comex Mar) +0.35 per cent at $3.55 (U.S.) a pound
Currencies:
Canadian dollar down 0.0050, or 0.49 per cent, at 1.0074 (U.S.)
ECONOMIC INDICATORS TO WATCH:
Statistics Canada said 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.
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.
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.
STOCKS TO WATCH:
In addition to RIM, Nike Inc. shares should see high volumes after the sports-shoe giant reported late Thursday second-quarter earnings from continuing operations of $1.14 a share, better than analysts' forecasts of $1 a share. Nike shares are up nearly 4 per cent in the premarket.
General Electric has agreed to buy the aviation business of Italian aerospace company Avio for 3.3 billion euros ($4.3 billion). Shares in the premarket are down 1.2 per cent.
Earnings out today include Walgreen Co.
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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
Darcy Keith