Stock market wild card: big spending cuts

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NEW YORK (MarketWatch)�U.S. stock-index futures on Monday tilted slightly higher in limited trade, with U.S. markets shut for Presidents Day; European shares and industrial metals fell on concerns about the global economy, in particular the euro zone, with Italian elections adding to investor uncertainty.

The yen USDJPY � continued its decline against other currencies, including the U.S. dollar, after leaders from the world�s 20 largest economies vowed not to devalue their currencies to bolster exports and bypassed criticizing Japan for indicating its expansionist monetary policies would continue.

Worries about an unclear outcome in Italian elections held Sunday and Monday hit European equities, with yields on Italy�s 10-year government notes climbing above 4%.

Futures for the Dow Jones Industrial Average DJH3 � rose 6 points to 13,954. Those for the Standard & Poor�s 500 gained nearly 1 point to 1,517.90. Futures for the Nasdaq 100 NDH3 � rose 3.25 points to 2,764.50.

Crude futures for March delivery CLH3 � fell 31 cents to $95.56 a barrel in electronic trade in New York. The more active April contract CLJ3 � declined 34 cents to $96.07 a barrel.

And, with a deadline in the battle over the U.S. budget just 11 days away, equity investors are considering whether likely federal spending cuts will spark a market correction from multiyear highs.

March 1 is when $85 billion in reductions to defense and domestic programs through the fiscal year ending Sept. 30 go into effect unless congressional leaders and the White House cut a deal to replace the automatic cuts.

Part of a larger program known as sequestration, the cuts aim to trim federal spending by roughly $1 trillion over nine years.

Read Political Watch: Not all �sequester� cuts would hit at same time.

We�ve been inviting our clients to simply expect volatility, thinking you could see 100-point swings. But it�s not there.

Tim Speiss, EisnerAmper

Economists have warned the spending reductions will dent growth in the world�s largest economy. Treasury Secretary-nominee Jack Lew last week in Senate testimony said the automatic budget cuts �would impose self-inflicted wounds to the recovery and put far too many jobs and businesses at risk.�

Read more on Treasury secretary-nominee Lew's hearing.

Senate Democrats late last week proposed a $110 billion plan to postpone federal cuts that would include tax hikes that Republicans have said they would not go along with.

With the Senate now in recess until Feb. 25, and with Democrats and Republicans far from agreeing to a resolution, investors have been wondering if the lack of clarity from Washington will trigger a sharp pullback in U.S. stocks.