The E-Mini S&P 500 reacted to the Federal Open Market Committee (FOMC) meeting announcement negatively today! It really was a case of the Fed keeping their powder dry. Should the euro crisis spin out of control, the Fed must be prepared to step in and control the effects. Investors speculate as to how much would the U.S. intervene should the crisis take on a new spin. For now, the Fed simply stated again “strains in global financial markets continue to pose significant downside risks to the economic outlook”.
Some traders may have hoped for a QE3! Really, the slightly better than moderate growth points to recovery in the US. The Fed continues with “Operation Twist,” an approach borrowed from the ‘60’s’. This is where the Fed sells the short-term bonds and buys the long-term bonds. For now quantitative easing remains in reserve for any potential recession derived in the eurozone.
The potential problems emanating from the eurozone was the disappointment over European Central Bank (ECB) President Mario Draghi withdrawing any loan thoughts to the International Monetary Fund (IMF) and not increasing the $20 billion in bond purchases per week. The ECB support was the main factor for euro hope! Further, German Chancellor Angela Merkel rejected the idea of raising the funding limit above $500 billion euros of the permanent fund, the European Stability Mechanism (ESM). The European Financial Stability Facility (EFSF) never quite got off the ground as it was funded for $440 billion euros and needed to leverage to $1 trillion euros.
The EFSF had held their first short-term debt auction and sold nearly $2 billion of the three-month bills at the average 0.22 % yield. Demand exceeded the amount sold. It was thought that Japan bought $260 million euros worth of the short-term bonds or about 13% of what was offered. Italy has their bond auction today. Spain had good demand of their 12- and 18-month bills. Greece and Belgium also issued short-term debt very successfully. It is thought that the potential downgrades warnings from the three credit rating agencies may be factored into the market already.
Moody’s credit rating agency said that it intends to examine all 27 European Union members during the first quarter of 2012. Fitch’s credit rating agency thought the euro summit to have missed the mark for deeper economic integration failing to provide a “comprehensive” solution to the crisis. Standard & Poor’s credit agency which had put 15 of the 17 EU nations on “credit watch negative” prior to the summit thought that another shock may be needed to shake up the eurozone! This still poses some significant risk! If France were downgraded from its AAA credit rating, then the EFSF may lose its appeal to potential investors that may buy the issued bonds.
This is a case where “the united may rise and the divided may fall”! A concerted effort may support the eurozone without threat to any individual nations, with the austerity measures in place and small steps forward, they potentially may work back up to a stable economic environment. The contagion fears prohibit other countries from intervention, thinking that they may be pulled down into the calamity. The global economic structure is fragile and vulnerable if torn, but held together in unity can support, after all it has until now.
U.S. retail sales were up 0.2 % Tuesday, but fell short of expectations and last month’s 0.6 %. Consumer spending did rise in the third quarter, and accounts for over two-thirds of the U.S. economic activity. U.S. business inventories were increased showing retailers anxious to get product back on the shelves. The U.S. economy had expanded at a 2.0% rate in the third quarter, by all counts "progress."
On the stock side: JP Morgan Chase & Co. (NYSE:JPM) was down 0.01% to $31.28. Citigroup Inc. (NYSE:C) was down 0.02% to $26.90. Bank of America (NYSE:BAC) was down 2.4% to $5.32. Sears Holdings (NASDAQ:SHLD) was down 5.1% to $53.71. Best Buy (NYSE:BBY) was down 15% to $23.73. Amazon (NASDAQ:AMZN) was down 4.8% to $180.51. Netflix (NASDAQ:NFLX) was down 4.2% to $72.11.
E-Mini S&P 500 Chart.
Wednesday, what to expect! We are technically in buy mode on the Daily Chart unless the E-Mini S&P 500 penetrates $1212.50! Wednesday, we anticipate an inside to lower day! Tuesday’s range was $1244.00 - $1212.50. The market settled at $1220.25. Our comfort zone or point of control for this market appears to be $1231.75. Our anticipated range for Wednesday’s trading is $1242.50 - $1203.50.