Morning Market Update : Dec 12

December 12th, 2012 by

The big show today is the Federal Reserve Open Market Committee, and their announcement on how much quantitative easing they will implement going forward as “Operation Twist” ends this month. Operation Twist was the sale by the Fed of short term Treasury notes they held, to finance long term notes. It is anticipated that the Fed will cease selling short term notes, and print the money to continue buying long term notes to keep long term interest rates down – an extremely inflationary tactic.

Worldwide, markets seem to be pricing in more quantitative easing by the Fed. The dollar is down, and both Asian and European markets are up. The Hong Kong market hit a 15-month high overnight on positive Chinese economic information. In Europe, news that Greece finished its discounted bond repurchase program and now qualifies for more bailout money combined with the anticipation of U.S. QE measures helped lift the market.

Gold and oil are up slightly in the U.S. today on short-covering, after seeing modest gains in Asia and Europe. This is partially from the dollar weakening ahead of the FOMC announcement, as the expected new QE policies will work to devalue the dollar. Since gold and oil are both sold worldwide in dollars, a weak dollar drives their prices up.

Other than the Big Show by the Fed, Wall St. has other things to look forward to today: Import and Export prices; MBA mortgage applications, a 10-year Treasury auction, and the Treasury report on the budget.  Sharps Pixley notes today that gold has seen a YTD increase of 9.11%, and since the low of $700 in November of 2008, has outperformed the S&P 500 through 2011, showing a gain of approximately 21% per annum.

by David Peterson