12/5/11 In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on four items impacting markets this coming week:
1. Europe is really “front and center” all week. Italy has already started us out this week by unveiling its austerity plan. With combined budgetary impact amounting to approximately 1.9% of the country’s GDP, the package contains tax increases, spending cuts, steps to fight tax evasion and retirement changes. Also, Angela Merkel and Nicolas Sarkozy will meet today in an effort to overcome their differences on closer fiscal integration in the Eurozone. A European Union heads of state summit meeting at the end of this week (December 8th and 9th) will bring expected interest rate changes and possible long-reaching policy decisions. Taken together, that is why we believe that this has the potential to be somewhat of a “make or break” week for the Eurozone.
2. The Federal Reserve is working on better communications. Much of the Fed’s December 13th meeting will be spent preparing a new system for signaling its policy plans to the public, with the dual goal of being more explicit about its inflation and employment targets and being clearer about its interest rate strategy to meet those goals. Officials hope to roll out the plan early next year. Much of the communication change came out of confusion surrounding a $600 billion bond purchase last year. Also, with short-term rates “pinned” near zero, it has become increasingly important that the Fed communicates its objectives clearly.
3. In addition to Europe, there will be several U.S. economic data points published this week. First up on Monday, U.S. factory orders for October are being reported along with the Institute of Supply Management’s posting of its non-manufacturing index for November. On Wednesday, the Federal Reserve reports on consumer credit for October. Friday brings U.S. international trade figures for October and the University of Michigan posts its initial reading of consumer sentiment for December.
4. Is the Western Hemisphere becoming the “new OPEC?” Here at Fi Plan we are fascinated with the global shift back towards the West that is now taking place in energy production. Simply put, two things are happening: (1) the political risk of oil production in locations such as the Middle East, Russia and Venezuela continues to rise, and (2) technological breakthroughs have made heretofore difficult production from such deposits as oil sands and shale a reality. Newer fracturing methods now have oil being extracted on an unprecedented scale from Australia to Canada. This could have far-reaching ramifications for the politics of oil, potentially shifting power away from OPEC countries and further concentrating it in the Western hemisphere. With more crude being produced in North America, there’s less likelihood of Middle Eastern politics causing supply shocks that drive up gasoline prices. Consumers could also benefit from lower electricity prices, as power plants switch from coal to cheap and plentiful natural gas.
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Senior Vice President
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
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