Stock Market Outlook Weighed by North Korea, Europe and DC

The mood was set sour Monday morning in Asia, though a sketchy start still had European shares in the green. North Korean state television reported the death of its leader Kim Jong Il, and considering the age of the leader’s youngest son and expected successor, Kim Jong Un, uncertainty rules today. The NIKKEI 225 Index and Hang Seng Index were down over a full percentage point on those concerns. Last week, Fitch Ratings followed Moody’s (NYSE: MCO) downgrade of Belgium with a warning that it may downgrade the debt ratings of European nations soon. The S&P 500 Index was up 0.3% Friday despite ratings threats, and so American shares may take a different direction than Asia. Still, the North Korean uncertainty dictates a wary market at best. The dollar is stronger against the euro, as capital seeks safety.

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Stock Market Outlook

American trading may also take its lead from Washington D.C. Monday. House Majority Leader Boehner said his GOP colleagues would reject the bill that passed the Senate in overwhelming fashion. The bill extends tax policy for two months, allowing Congress to avoid the year-end deadline and take off for the holidays. Depending on how the bill does in the House, we may see the payroll tax and unemployment extension debate run up to Christmas Eve. The uncertainty in Washington is likely to weigh on the tone of trading Monday morning, though I suspect traders expect Congress to come to a deal before the deadline. After all, that is the precedent. However, given the fact that the rhetoric from House Republicans does not match the agreement of the Senate GOP members, there is some question as to whether the New Year will come first. If that happens and taxes rise and unemployment benefit extensions expire, the market will pay a penalty.

Just one relatively insignificant economic data point reaches the wire Monday, with the reporting of the Housing Market Index (HMI). The HMI, produced by the National Association of Home Builders, measures the mood of the home construction industry. The index improved to a mark of 20 in November, mostly on builders’ better though questionable expectations given what appeared an improving housing market. However, given that housing recovery faces new economic threat, and with continued strife around Europe, we suspect there will be little to no more positive change here. Still, builders may not yet see the economic issues we see ahead.

China reported that home prices had fallen in November in 49 of the 70 cities it monitors, compared to the 33 cities showing drops in prices in October. If the Chinese real estate market is about to collapse, global confidence could likewise be completely lost, in my view. I’ll have more to say about China later this week. Other international data reaching the wire Monday includes November unemployment for Hong Kong, November export and import data for Thailand, and October industrial production and retail sales for Colombia.

The global finance wire has a trilateral meeting of U.S., Indian and Japanese representatives in Washington D.C. Some $1.22 billion of Greek debt comes due Monday. The U.K. will respond to its banking commission’s recommendations.

The corporate wire has Russell adding 31 recent IPO offerings to its Global Index, perhaps giving lift to some as index funds add them to holdings. IPO lockup restrictions expire on Vanguard Health Systems (NYSE: VHS). The International Trade Commission will rule on Apple’s (Nasdaq: AAPL) patent case against HTC. Monday’s earnings schedule includes Red Hat (NYSE: RHT), Shiloh Industries (Nasdaq: SHLO), Park Electrochemical (NYSE: PKE), Piedmont Natural Gas (NYSE: PNY) for certain, and possibly from Brooklyn Federal Bancorp (Nasdaq: BFSB), China Direct Industries (Nasdaq: CDII), China Holdings Real Estate (Nasdaq: HGSH), Citizens Community Bancorp (Nasdaq: CZWI), CPI Corp. (NYSE: CPY), CSP Inc. (Nasdaq: CSPI), Dynasil Corp. of America (Nasdaq: DYSL), Emcore (Nasdaq: EMKR), Ennis (NYSE: EBF), Good Times Restaurants (Nasdaq: GTIM), Integrated Electrical Services (Nasdaq: IESC), Jiangbo Pharmaceuticals (OTC: JGBO.PK), MVC Capital (NYSE: MVC), Pansoft (Nasdaq: PSOF), Seanergy Maritime (Nasdaq: SHIP) and VCG Holding (Nasdaq: VCGH).

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