Monday Morning Cheat Sheet: 3 Stories Moving Markets

The markets were mixed in Asia overnight. The Nikkei climbed 0.62 percent in Japan for a fifth consecutive day of gains. Meanwhile, the yen continues to weaken, trading at 93.14 to the dollar. The Hang Seng was off 0.16 percent, and the S&P/ASX 200 fell 0.28 percent.

The outlook is gloomy in Europe at mid-day. London’s FTSE 100 was off 0.69 percent, Germany’s DAX was off 0.62 percent, and the STOXX 50 was off a full 1.03 percent. Tremors of political tension in Italy and Spain threaten to create friction for the region’s struggling recovery effort. Brent crude was off about 0.62 percent to $116.04 per barrel.

U.S. futures at 8:10 a.m.: DJIA: -0.37%, S&P 500: -0.39%, NASDAQ: -0.34%.

Here are three stories to keep an eye on: Tighten Your Belt - Austerity

1) The probability of default is as high as 20 percent in Spain and Italy, according to Anshu Jain, co-CEO at Deutsche Bank. Bloomberg reports that the two countries still owe as much as 2 trillion euros to the world, and the weight of that debt is a considerable risk. Economists monitoring the region have expressed concerns that February voting in Italy could put former premier Berlusconi back in power, and corruption allegations in Spain could depose Premier Mariano Rajoy.

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Each situation poses a unique risk to international creditors and market participants who are relying on the region’s slow crawl out of recession and debt, and back to economic growth. Current leaders in both countries support severe austerity measures that came as a condition for financial support, while the new leaders have their eyes on easing spending cuts and eliminating tax hikes.

Congress2) A recovering housing industry, rising car sales, and strong manufacturing could fuel “really strong growth in 2013,” said President Barack Obama in an interview with CBS before the Super Bowl on Sunday. But overall economic strength will mean a healthy private sector and a healthy public sector, and the President recognizes the current atmosphere of dysfunction on Capitol Hill.

“Washington cannot continually operate under a cloud of crisis,” he said. “That freezes up consumers, it gets businesses worried. We can’t afford these self-inflicted wounds. There is a way for us to solve these budget problems in a responsible way, through a balanced approach…if we do that, there’s no reason why we can’t have really strong growth in 2013,” he said.

3) Factory orders data for December are due out at 10:00 a.m. on Monday, and consensus is calling for a 2.4 percent month-over-month change. This would compare to effectively no change in November. Recent market highs have spurred a lot of optimism and momentum among many investors, but others are still treading cautiously. If economic indicators like the factory orders report show that activity is low, then investors could curb their interest in related equities.

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