Europe's sovereign debt woes will continue to tug at markets, as investors Tuesday also get a few new pieces of U.S. economic data and hear from Fed Chairman Ben Bernanke on the economy.
Traders had expected the markets to be swayed this week in both directions — by the negative headlines from Europe on its debt crisis, and then by the positives of better-than-expected U.S. economic reports. The week's data puts the focus on the consumer, with holiday and other chain stores and car sales data. The calendar is also heavy with manufacturing, housing and employment news, and ends with the November jobs report Friday.
But one of Tuesday's reports - the S&P/Case-Shiller home price index - is not expected to show improvement, says Mark Zandi, chief economist at Moody's Economy.com.
"I would anticipate we would see prices fall further," said Zandi. He said he expects prices to show a decline of 5 to 10 percent, between the second quarter of 2010 and the second quarter of 2011. "From peak to trough, I expect Case-Shiller to fall 34 percent. Right now it's down about 30 percent," he said.
The home price data is released at 9 a.m. Consumer confidence is reported at 10 a.m., and Zandi does expect to see improvement in the number. Chicago purchasing managers data is also reported, at 9:45 a.m. Bernanke speaks at 3 p.m. to a group of business leaders in Columbus, Ohio. The event is described as a conversation on the economy.
Taxes and the deficit also take center stage in Washington Tuesday.
Congressional leaders meet with President Obama late in the morning, and markets are watching to see if there is any post-meeting word on the much anticipated effort to extend the Bush tax cuts. The budget deficit is also expected to be discussed, among other topics.
The president holds his first meeting with the Congressional leaders since a Republican sweep gave the GOP control of the House of Representatives. Republicans would like all of the Bush tax credits extended, but President Obama and other Democrats have favored eliminating tax cuts for the wealthiest Americans.
The meeting also precedes the bipartisan presidential deficit commission's Wednesday meeting on its controversial plans to cut spending. Ahead of that meeting, President Obama Monday proposed a two-year freeze of two million federal workers' salaries.
"That is more symbolic than substantive," said Zandi. "It would be very hard for him to go to the American people and say you're going to have to suffer and not ask federal workers to do the same." The deficit commission plans to hold a press briefing Tuesday.
Investors fretted Monday over the bailout of Ireland and implications for the euro zone, as fears of contagion drove yields on other sovereign credits higher. The euro itself became a punching bag for traders, who sent it reeling below 1.31 against the dollar. Stocks were at the lows of the days as the euro sank to its lows, but recovered when the euro retraced some losses.
The Dow was down 39 points at 11,052, after dipping more than 162 points at its low point Monday. The S&P 500 fell 1 point to 1187. Bonds found buyers, as investors looked to Treasurys and the U.S. dollaras safety plays. The 10-year was yielding 2.82 percent.
Jordan Kotick, global head of technical strategy at Barclay's Capital, said the real story of November's markets is not the euro. "The standout is the strength in the dollar, and the fact that there's no aggressive bid for Treasurys," he said.
"The usual reaction to the European crisis is to buy the dollar and buy the bond market. It's kind of new and kind of interesting. We think it's a healthy story for risk," he said.
Kotick said the selling in stocks is not yet over. "It's month end and you've got payroll data. You could have a whippy week. The month of December, which is one of the best for stock - that's when we look for a bottom for stocks and upside into Q1. We're not there yet. In the meantime, we should be focusing on the dollar and the bond market," he said.
He said the dollar confirmed some very broad-based bullish signals last week. "It's not just a euro story. It's a dollar story against Swiss, euro, sterling," he said. If you look at the dollar index, he said it has stayed in its range, bottoming at 75.63 at the beginning of November, and it's now pushing towards 85 to 88.
"This isn't the death of the euro, or was it the death of the dollar. Those are oscillations in a five year range," he said.
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