EmailWith the S&P 500 down 5.2% in the last two days, the equity market is aiming to change direction this morning. The S&P futures are currently trading 1.3% above fair value.
The opening indication was stronger earlier, yet it was tempered a bit following a headline that the EFSF is delaying a previously scheduled bond auction. That makes some sense given the unsettled state of the European credit markets, yet it is a tacit reminder that Greece has sowed seeds of confusion with its intention to hold a referendum on the EU bailout plan.
There are reports this morning that EU leaders are trying to persuade Papandreou from carrying out that plan, but thus far the Greek prime minister appears intent on sticking to his referendum call, assuming of course he survives a no confidence vote on Friday.
Greece is a mess. Moving on.
The upside bias this morning has been pinned on speculation the Fed might announce a third quantitative easing plan at the conclusion of its FOMC meeting today, with a focus on buying mortgage-backed securities.
Notwithstanding the fact that some officials have talked of this possibility recently, our thinking is that the Fed will refrain from turning it into an action plan today. Instead, we think the directive will simply note that such a move is a policy tool the Fed has at its disposal in the event it needs to provide additional accommodation.
The target range for the fed funds rate will of course be left unchanged (0.00% to 0.25%) and we suspect the European debt crisis will be held out as a factor that is increasing downside risks to the economy.
Whatever the outcome of the FOMC meeting is today, the overriding point that monetary policy is supportive of risk assets will not change.
The FOMC directive will be released at 12:30 p.m. ET and will be followed by Fed Chairman Bernanke's press conference at 2:15 p.m. ET.
In other developments, the ADP Employment Change report for October came in largely as expected, with private sector payrolls estimated to have increased by 110,000 (Briefing.com consensus 100,000).
Once again, the payroll gains were driven by small and medium-sized businesses, which added an estimated 58,000 and 53,000 jobs, respectively. Large business payrolls declined by 1,000. All of the growth in October came from the services sector, too, which ADP said added 114,000 jobs. The goods-producing sector saw a decline of 4,000 positions.
The response to the ADP report was fairly muted since it was close to expectations and did not sway expectations for the government's employment report on Friday, which is anticipated to show an 85,000 increase in nonfarm payrolls and a 117,000 increase in nonfarm private payrolls.
Looking abroad, foreign equity markets look mixed (or is it mixed up?) in both Asia and Europe and Italy's 10-year Note yield has crept back up to 6.23% after sliding to 6.18% yesterday on what was reported to be ECB buying.
Corporate earnings continue to come in mostly better than expected. Clorox (CLX), Mastercard (MA), Time Warner (TWX) and Hyatt (H) are among the luminaries today that delivered better-than-expected earnings.
The market's pre-occupation today, however, is with Europe and the Fed.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
