Week Ahead: Fed Meeting, 'Cliff' Talks Will Be on Traders' Radar
Stocks shrugged off political bickering over the "fiscal cliff" this week, helped by an upbeat November jobs report. Will the momentum continue in the week ahead? Here's what traders will be watching in the week ahead:
Tense negotiations are expected to continue as President Barack Obama and House Speaker John Boehner try to find compromise on a deal to avert the fiscal cliff, when tax increases and spending cuts go into effect at the end of the year, and a framework for a larger deficit-reduction plan. Obama has refused to back off his position that tax rates must go up for the wealthiest 2 percent of Americans.
Republicans, meanwhile, have demanded concrete pledges for entitlement spending cuts. Talks are expected to intensify behind closed doors but it may be another week before serious, detailed negotiations get underway.
The Federal Reserve is expected to maintain its bond buying at $85 billion a month after a meeting on Tuesday and Wednesday, replacing the expiring "Operation Twist" with purchases of longer-term Treasurys funded by new money creation.
The U.S. central bank is also expected to reiterate its open-ended commitment to maintain this quantitative easing of monetary policy until it sees a substantial improvement in the labor market outlook. Fed Chairman Ben Bernanke will speak to the media following the Wednesday to explain the Fed's decision.
The bond markets will stop twisting next week when the Fed, details its plans to buy more long-term debt, which could continue to pressure bond yields, especially at the long end of the curve. The Fed's posture is not expected to change otherwise, and that should not surprise markets.
The rest of the attention will be on the "fiscal cliff" and the negotiations continuing in Washington. Stocks haven't been overly perturbed by the lack of progress, other than to take time selling stocks that have big embedded capital gains, like Apple.
Fresh off a mixed but generally better-than-expected report on U.S. employment, economists will train their eyes on data for retail sales for November, which will provide a gauge of how consumer spending fared as the holiday shopping season kicked off. Economists expect sales last month bounced back after being dragged lower in October as Super Storm Sandy weighed on auto sales. Excluding autos, sales will probably be flat.
The government also releases data on consumer and producer prices. Both are expected to drop from the prior month as energy prices recede, with core readings on a modest, upward course. Economists expect little change in new claims for jobless benefits, which have returned to pre-Sandy territory.
Exxon Mobil, the world's largest publicly traded oil company, releases its annual long-term outlook for the energy sector on Tuesday. Last year, Exxon forecast energy demand will rise 30 percent over the next three decades, with fossil fuels contributing to 80 percent of supply. The company also said it expected carbon dioxide emissions to peak in 2030 as more natural gas replaces coal in power generation.
How anxious have U.S. CEOs become about the risks of the U.S. economy slipping over the fiscal cliff and possibly back into recession? In a report due on Wednesday, the Business Roundtable's quarterly survey of CEO confidence will offer some insights into this pressing question. In the third quarter, CEO confidence fell to its lowest in three years with more than a third of executives saying they were preparing to cut jobs in the next six months. This quarter's edition of the survey could show if their blood pressure has risen or calmed since U.S. President Barack Obama in November was re-elected.
The Canadian Association of Petroleum Producers holds an investment symposium in Toronto from Monday to Wednesday, with presentations from many leading companies and industry experts.
The forum is particularly timely, given the looming Dec. 10 deadline for Canada to rule on a bid by state-owned CNOOC for domestic energy producer Nexen. Housing starts data, due on Monday, will offer clues on whether the hot housing market is really cooling down.
Bank of Canada Governor Mark Carney, the next head of the Bank of England, will speak about central bank policy guidance on Tuesday.
Dollar General's results on Tuesday may provide a look at the state of the low-income shopper. The chain sells general merchandise and food in more than 10,200 stores across the U.S. and its sales have grown faster than those at larger rival Walmart.
On Wednesday, Costco posts results from its fiscal first quarter, which included the early part of the holiday season. Also on Wednesday, 3M, the diversified U.S. manufacturer, lays out its expectations for next year in a meeting with investors.
CVS Caremark is set to give its 2013 forecast at its meeting with analysts on Thursday morning. Third-quarter profit came in a penny ahead of analysts' expectations, with growth in both the pharmacy benefits management business and the drugstore chain.
What to Watch on Monday
McDonald's posts monthly same-store sales data, which may show if the chain has reversed its trend of falling global restaurant sales. The world's biggest hamburger seller replaced its executive in charge of U.S. operations after October global restaurant sales declined for the first time in nine years. Was the downturn a blip or does the company, which had dominated its industry for several years, have more serious problems?
Top beverage industry executives will gather in New York on Monday at a conference hosted by industry publication Beverage Digest. Speakers include PepsiCo CEO Indra Nooyi, Coca-Cola North America President Sandy Douglas and Dr Pepper Snapple CEO Larry Young, who will likely comment on issues ranging from the pending New York City restriction on big soda cups to the recent scrutiny of energy drinks.
Bank of England Governor Mervyn King speaks at the Economic Club of New York. The backdrop for King's speech is the ongoing crisis in the euro zone, and - in King's own words - an "exceptionally challenging" environment in the UK economy that has some analysts predicting more policy easing.
King is also talking as the heat is on Washington to resolve the impasse over the fiscal cliff that some fear could push the U.S. economy back into recession with consequences for the rest of the world. The governor is set to be replaced by Canada's central bank chief Mark Carney in July. Carney has been a leader of the global push for stronger banking regulation.
After a weak third quarter, Texas Instruments may be under pressure to improve its revenue outlook for the fourth quarter in its mid-quarter update, as its rival Broadcom recently boosted its forecast for fourth-quarter revenue to the high end of its target range, citing slightly better-than-expected sales in its mobile business.
TI had said in October that orders for this quarter were soft as its customers are nervous about economic weakness. TI may also tweak its earnings guidance for the quarter to take into account job cuts it announced in November.