By this point, it should come as no surprise to hear that dealings in Europe are the center of attention for market participants.  That was the case last week when the S&P 500 surged 5.4%, and it is the case this morning with the S&P 500 expected to open the session about 1.6% lower.

The prevailing perspective this morning is that finance ministers meeting in Poland over the weekend once again failed to convey a needed sense of resolve in handling Greece's problems.  Some reports say Greece will indeed receive its next bailout tranche.  Other reports indicate some officials say that is not a guarantee.

Whatever the case may be, it was more bumbling, jumbling, and stumbling by European officials at exactly the time the market had started to hope they were recognizing the error of their bumbling, jumbling, and stumbling ways on the matter of Greece and sovereign debt problems in Europe.

Adding to the market's disappointment was the indication that German Chancellor Merkel's party lost its sixth regional election this year, casting doubt on Germany's resolve to approve the expanded European Financial Stability Facility.

Market participants have been programmed to think and to speak in terms of a risk on/risk off trade these days.  It is certainly risk off at the moment, but an appropriate adaptation to that thought process may be to think of things as Greece on/Greece off.

Regrettably, politics are covering the market this morning like a wet blanket.  Aside from the happenings in Europe, the divisiveness in Washington is bubbling to the surface again as President Obama and Republican leaders are clashing again with their views on how to fix the U.S. economy and to address long-term budget deficit problems.

The president will unveil his deficit-fighting plan at 10:30 a.m. ET.  Various reports over the weekend indicated it will contain a provision to impose a "millionaire tax," as well as cuts to Medicare and Medicaid that need to be met dollar-for-dollar with increased revenues (political speak for higher taxes).

Republican leaders have already said they will not agree to any new tax increases, so participants are developing a sense that they will be dealing with political dysfunction as usual where either side stands as much chance of convincing the other of their approach as a narcoleptic does of staying awake in a store of white noise machines.

Speaking of noise, the market expects the Fed to make some this week at the end of its two-day FOMC meeting (Sept. 20-21) where committee members will discuss various policy tools that can be implemented to help the Fed meet its dual mandate of maximum employment and price stability.

Conventional wisdom is that the Fed will announce "Operation Twist" whereby it will start concentrating its purchases on the middle to long end of the Treasury curve in a bid to hold down long-term interest rates.  It is also conventional wisdom, however, that this operation won't achieve much considering long-term rates have already been low for some time and yet the U.S. economy has remained stuck in a low-growth mode.

This sets up the idea, then, that if the Fed wanted to get the most out of a policy move, it would do something unexpected.  That's not to say the Fed will do something for sure outside the box. 

The bigger risk perhaps of doing something unexpected lies in doing nothing at all; nonetheless, market participants should still respect the possibility that the Fed might aim to put a twist on its next policy move if it is convinced Congress can't/won't do its part to help jumpstart growth with fiscal policy.

--Patrick J. O'Hare, Briefing.com       

Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.