The last five days before the shortened Christmas week may bring tidings of inflation, Bernanke rhetoric, and volatile Friday trading as investors unwrap both producer price (PPI) and consumer price indexes (CPI), foreshadowing Bernanke language, and a "quad witching" day on friday. We will get a taste testing of government debt as the 4 week, 3 month, 6 month, and 52 week Treasury bills are digested, following the weakness in long-term 10 and 30 year notes last week. Capping the week we will see manufacturing data and a summary of froward indicators for the most recent month, as traders search for guidance heading into 2010.
Monday
Monday's have been something of an equity market spectacle over the past month, garnering their share of shop talk amongst the small fish looking to the sharks for notes. The word on the street is that the big boys have been playing the SPY futures over the weekend, causing for an early spike on monday morning, followed by the pullback when the same bullies pull out profits into Friday's session. We'll see if there's still the chutzpah to put down bets as the dollar weakens and the Fed meets this week. The 3-month and 6-month Treasury bill auctions at 11:30 am will weigh the lower end of the yield curve, after last week's weakness in the 10 and 30 year notes, but shouldn't effect stocks unless yields really start popping ahead of the Fed's FOMC announcement.
Tuesday
ICSC Goldman and Redbook retail sales, at 7:45 am and 8:55 am respectively, will set the tone as the Christmas sales sample begins to hold more water. The Producer Price Index (PPI) hitting the ticker at 8:30 am may muffle recovery hawks if the expectation for a 1.0% increase in November is met on top of the October 0.3% gain. Still the core statistic is projected to barely break even at 0.3% higher than October. At 8:30 am the Empire State Manufacturing survey will measure the forward strength of industry in New York, off of it's October high and expected to stabilize near the 23.5 November reading at 25.0 for December. Positive numbers for the index gage growth, yet a weakening progression suggests a decline in the rate of increase from record low output levels. November industrial Production numbers at 9:15 am are expected to increase from the anemic 0.1% increase in October, and will send markets lower if the 0.6% forecast defied by a weak or negative monthly change. The 4-week and 52-week Treasury sale at 11:30 am may shock markets if yields drift higher prior to the Wednesday FOMC meeting. Capping the day, the 1:00 pm Housing Market Index (HMI) could leave a sour taste on traders' economic palettes if the report sites weakness for the badly hurt sector.
Wednesday
It's all about Bernanke baby... The December FOMC announcement at 2:15 pm will be hotly anticipated by watchful traders around the globe, as the economic outlook for the world's largest economy could change the trajectory of the U.S. dollar. The benchmark Fed Funds overnight rate is expected to remain at the 0.25% level, but the language of the release could turn have a violent effect on the USD value. Last week, Bernanke found himself between the dollar and a hard place as he gave a more dreary outlook of the U.S. economy, as if in a last ditch effort to talk down the value of the Green Back. The cheap money has allowed institutional traders to keep stock prices high in an effort to extend the recovery, so far only felt in the price of U.S. corporate shares; a plus for Bernanke as he navigates the potentiallyunraveling economy. At 8:30 am the Consumer Price Index (CPI) is expected to show a virtually unchanged 0.4% growth rate for headline inflation, while the core number should be effectively 0.1%. Simultaneously, November housing starts are forecast to climb from a yearly .529 million rate to .575, yet a similarly increasing outlook in October was fuddled by builders decreasing the number of starts. 10:30 am will capture commodity desks, as an EIA Petroleum report of higher crude oil inventories will take the price of the WTI January contract further below $70/barrel.
Thursday
Jobless claims at 8:30 should snap the attention of analysts from the FOMC announcement and are expected to fall by 9000 jobs from last weeks increase to 474,000. The sum of leading economic indicators was said to have increased over the November period by 0.7% from the October gain of 0.3%, to be confirmed or dis-confirmed at 10:00 am. The Philadelphia Fed will release it's assessment of business conditions in November alongside the leading indicators. The Philly branch expects growth to maintain it's trajectory at a level of 16.5 compared to 16.7 in October, in a report which is often compared to the industrial production numbers out on Tuesday.
Friday
While completely void of economic indicators, the "Quad Witching" Friday should end anything but calmly as U.S. finacial markets antiquate the time value of derivative contracts leading into expiration. Quad Witching is a term used to describe the expiration of Stock Index Futures, Stock Index Options, Individual Stock Futures, and Individual Stock Options. Triple and Quadruple Witching days are increasingly volatile, as derivatives contracts expire on this day and the obligations of contract holders are called upon to be honored. Many derivatives hold certain values based on expectations concerning the value of the underlying security and the length of time until expiration. This causes many losing positions to be covered in a hurry when the strategy goes bust and large numbers of shares to trade hands as prices swing through wide ranges.
The December 14-19 week will hold plenty of answers to questions concerning U.S. inflation, monetary policy, and implied price volatility. Watch for sustained moves higher by the U.S. dollar, which could send gold prices sharply lower and crude oil to mid $60-$70/barrel prices. Stocks will also suffer from U.S. dollar strength at these levels, while a legitimate sentiment shift could see a sell off leading into 2010.
