Morning Market Update Dec 11

December 11th, 2012 by

U.S. markets are bracing for a flood of economic reports today, in addition to the opening of the FOMC meeting. Trade deficit numbers are already in, widening a bit less than expected. Redbook retail sales numbers, NFIB small business confidence, wholesale inventories and the IBD/TIPP economic optimism index are also due today. Oh, and OPEC ministers are meeting in Vienna today as well, though nothing earth-shaking is expected from that.

In Europe, German investor confidence shot up firmly into positive territory from a negative outlook last month, signifying a belief that Germany will not fall into recession this year. This news, coupled with the prospect that Italian PM Monti may challenge Berlusconi’s attempt to return to power on an anti-austerity measure, and better than expected reception to the latest Greek and Spanish bond sales has sent European stocks and the euro upwards. Speaking of bond sales, there is a sale of 3-year Treasury notes today in the U.S.

Of course, the big story is the FOMC, and how far they will go with the next round of quantitative easing. Expectations are that the Fed will engage in naked bond-buying, as well as continued purchase of mortgage-backed securities. More analysts are being open in their concern that the Fed will be unable to divest itself of these assets, expected to balloon to $4 trillion dollars next year, once the economy is back on its feet. Another concern is that it will be impossible for the Fed to keep interest rates low enough that the interest on government debt doesn’t crush the nation. This will fuel more precautions against inflation as time goes on.

by David Peterson