The powers that be in Washington worked out a deal over the weekend that will enable the U.S. to avoid a default, assuming of course Congress agrees to vote for it.  The presumption is that the measure will pass both houses, yet with the understanding that the spending cuts aren't as deep as some tea party members would like and that the bill doesn't contain any tax increases as some Democrats would like, it's still safe to say this ain't over yet.

The market, however, is hopeful that the votes will be there, as party leaders have suggested they should be.  That hope is reflected in the S&P futures, which are trading 1.1% above fair value, and in gold futures, which are down 0.7% in early action.

Still, there is an air of anxious enthusiasm surrounding this plan, because it presumably doesn't go far enough to satisfy the parameters set by Standard & Poor's to avoid a downgrade of the U.S. debt rating and because it received only a half-hearted endorsement from President Obama and House Speaker Boehner.

To wit, in an appearance last night, the president asked, "Now, is this the deal I would have preferred?"  He answered, "No."  Speaker Boehner, meanwhile, said "It's not the greatest deal in the world."

The basic outline of the plan, reported by Bloomberg.com, is as follows:

• Raise the debt limit by at least $2.1 tln in a two-stage process: (1) $900 bln now and (2) $1.2-$1.5 tln by the end of the year after further spending cuts are identified by a special congressional committee
• Cut government spending by roughly $2.4 tln in a two-stage process: (1) an agreed-upon plan now to cut approximately $900 bln over a decade and (2) identifying another $1.5 tln in spending cuts by late November
• If Congress can't agree to at least another $1.2 tln in spending cuts, the president would be permitted to obtain a $1.2 tln extension of the debt ceiling that, in turn, would trigger automatic spending cuts across the government starting in 2013

The strongest source of relief in this deal is the idea that it will get done by the August 2 deadline, thereby preventing any type of default.

Even so, the level of excitement surrounding the compromise is a bit like the level of excitement surrounding the news that Barry Bonds passed Hank Aaron as the home run leader.  That is, the adulation and admiration is largely local and the accomplishment comes with an asterisk.

It's criminal that we even got to this point, so praise for our home run hitters in Washington will be withheld. 

We recognize that there is an automatic trigger for spending cuts if the special committee and Congress can't get things worked out for more cuts by late November, but if Congress couldn't make the grand compromise now, why should one be confident it will make one four months down the road when we are even deeper into the run for the White House in 2012?

Sadly, we fear politics will be playing with the market for some time to come yet.

For now, a relief rally is in order for the start of trading.  Foreign markets were mostly higher in the wake of the debt deal announcement and the U.S. is poised to follow suit.

The ISM Index at 10:00 a.m. ET, though, could be a potential spoiler.  If there is a disappointing reading for the survey of national manufacturing conditions for July, it could quickly get the market's thoughts fixed on the idea that, debt deal or no debt deal, economic activity and earnings prospects are weakening.

The Briefing.com consensus estimate for the ISM Index is 54.0, down slightly from the 55.3 reading for June.

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

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