New U.S. home sales data, showing sales were worse than reported for the past four years, and reports on European bank borrowing could produce some of the bigger headlines Wednesday, as markets wind down ahead of the quiet holiday week.
Disappointing third quarter earnings guidance from Oracle took that stock 10 percent lower after Tuesday’s bell, and that could be a weight on technology shares Wednesday morning.
Besides monthly existing home sales data at 10 a.m., investors await the revisions to past home sales data, expected to show that total sales were weaker than previously reported, going back to 2007. Last week, the National Association of Realtors flagged that it miscalculated home sales due to double counting, and analysts say the revisions could show sales were 10 to 20 percent lower than reported, a discouraging statistic for the fragile consumer psyche.
The European Central Bank , meanwhile, is expected to report how much European banks are borrowing in its new 3-year funding program. Analysts estimate the banks are borrowing about 300 billion euros at the 1 percent rate. Some analysts say the hope is that the banks will use the cheap ECB money to buy euro zone periphery debt, which has seen yields moving lower.
“We’ll be looking at how much the banks have availed themselves of ECB money and whether there is in fact a collateral shortage,” said Brian Dolan, chief strategist with Forex.com.
On Tuesday, stocks went flying after a surprise jump in U.S. housing starts and a report showing improved German business confidence. A Spanish debt auction was also well received, bringing rates down. Treasurys sold off, and the yield on the 10-year rose to 1.927 percent. One-month Treasury bill yields, however, were negative, as they were Monday and last week, as investors used the bills to park capital over the year end.
The 10-year touched a low yield of 1.80 percent Tuesday. “We just keep zigzagging back and forth,” said Rick Klingman, who heads BNP Paribas’ Treasurys trading. “People are still buying Treasurys on dips. There’s been a lot of conferences and talk but nobody is convinced that Europe is fixed and sovereign issues aren’t going away.”
Klingman expects the auction of $29 billion 7-year notes Wednesday to be well received after Tuesday’s 5-year auction. “We had decent backup today, so the 7-year will probably go down fine.”
The Dow jumped 337 points to 12,103, for the best gain since Nov. 30, and the first up day in three. The S&P 500 rose nearly 3 percent to 1,241, its highest close since Dec. 9. The Dow is now up 4.5 percent for the year, while the S&P is down 1.3 percent.
Barclays Capital’s Barry Knapp, who heads portfolio strategy, said the market could continue to move higher but it will face headwinds early in 2012. “I wouldn’t be surprised if any squeeze takes us much above 1,250,” he said.
The final weeks of the year have become make or break for the key indices. Knapp expects the market to be barely changed on the year, and he likens the performance to a disappointing movie.
“The director did manage to put in some very exciting scenes but as you walk out of the theater you think it wasn’t very good and it wasn’t very satisfying,” he said.
Markets are also focused on the back and forth between the House and Senate on the extension of the payroll tax cut. The House Tuesday rejected a Senate bill that would have extended the payroll tax cut and long-term unemployment benefits for two months. The bill is now expected to be hashed out by a conference committee.
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