NEW YORK (

TheStreet

) -- The major U.S. equity indices are still 0-for-September and the chance of a bounce on Wednesday may rest with Germany, whose participation in eurozone bailouts faces a judicial test.

The country's Federal Constitutional Court is set to weigh in on the issue, and while there's a good chance the court will request greater scrutiny of future decisions in this arena, it's not expected to come down in favor of lawsuits assailing the legality of the concept. This result could go a ways toward stabilizing the situation in Germany, where Chancellor Angela Merkel is

facing mounting opposition within her own party

to more rescues.

If the court takes the prospect of lawsuits off the table, that should remove some near-term uncertainty in the eurozone, but it's not a game-changer for those worried about sovereign debt contagion.

Ian Shepherdson, chief U.S. economist at

High Frequency Economics

, reacting to a colleague's conclusion that major bank failures in the eurozone are "just a matter of time," said he expects the worsening situation across the pond to prompt the U.S. government to step up to Ben Bernanke's recent challenge to Capitol Hill and the White House.

"The good news is we think that the combination of despair at the lack of traction in the domestic economy and fears of disaster in Europe will prompt a U.S. policy response," he writes in commentary late Tuesday. "That response will be fiscal, however, not monetary."

While Shepherdson is skeptical that increased spending will get the support of both the Republicans and Democrats, he believes the current political environment will be amenable to tax cuts.

"To make a difference, the tax cuts would need to be big, say 3% of GDP

gross domestic product immediately, maintained at least through the end of 2013, and unwound gradually over a five-year period," he explains. "The shape and structure of the cuts is for the politicians to decide, but a package tilted towards putting money into the hands of lower- and middle-income consumers would do most to boost spending."

That scenario is cold comfort right now though for lower- and middle-income investors watching the numbers in their 401k accounts shrink.

As for Wednesday's economic data, most of the market's attention will be focused on the

Federal Reserve's

Beige Book report at 2 p.m. ET. The anecdotal observations on the economy are sure to be depressing reading, more grist for the mill at the central bank's next policy meeting. Shepherdson says, however, that the consumer picture may actually be "a bit brighter" than anticipated, given that chain-store sales have held up pretty well.

Wednesday's other datapoints will include the MBA Mortgage index for the week ended Aug. 26 at 7 a.m. ET, and Redbook chain-store sales for last week at 9 a.m. ET.

The earnings calendar is light with a.m. notables down to

Sycamore Networks

(SCMR)

and

Talbots

(TLB)

, while the late session features

Men's Wearhouse

(MW)

, and

Smith & Wesson

(SWHC)

.

Talbots' shares have fallen more than 70% since the start of 2011 and Wall Street is expecting a deep loss of 45 cents a share for the company's fiscal second quarter ended in July after the Hingham, Mass.-based women's apparel retailer warned of weak results because of slowing sales and heavy promotional activity in early June.

The bears far outnumber the bulls ahead of the report with 11 of the 14 analysts covering the shares at either hold (7), underperform (3) or sell (1). And even the bulls aren't expecting much in the near-term. Sterne Agee analyst Margaret Whitfield expects the second quarter to be "ugly as advertised" but says the early fall lines in stores now "look improved both in quality and appeal to the core consumer."

Whitfield maintained a buy rating and $4 price target on the stock but says she expects Talbots to forecast a loss of 3 cents a share in its fiscal third quarter vs. the current consensus estimate for breakeven results so more downside may lie ahead.

Then again, analysts these days seem to be

way too positive

, given the sorry state stocks are in, so take any bullishness with a grain of salt.

Finally, Tuesday's

after-hours session

was a busy one that should spark more headlines as

Bank of America

(BAC) - Get Report

shook up its executive ranks

and Carol Bartz is reportedly out as CEO of

Yahoo

(YHOO)

.

--

Written by Michael Baron in New York.

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