Benzinga Market Primer, Wednesday, December 12: FOMC Edition
Futures Rise Ahead of Fed
U.S. equity futures rose in pre-market trading ahead of the FOMC rate decision. Also, Fiscal Cliff talks seem to be progressing and Democrats are willing to discuss completely rewriting the tax code, a key point of the Republican caucus. However, such a move might delay any deal into the new year.
In other news around the markets:
- North Korea launched a new rocket, sending a satellite into space. The rocket's trajectory took it over the Japanese island of Okinawa.
- Goldman Sachs, in a new research note, believes that the Reserve Bank of Australia (RBA) should cut rates to two percent throughout 2013 from the current three percent to weaken the Aussie dollar and spur growth.
- Eurozone Industrial Production for October was reported at a -1.4 percent rate of contraction as compared to September, or a -3.6 percent annualized rate, worse than economist forecasts of a 0.2 percent monthly rise and a -2.3 percent annual contraction.
- S&P 500 futures rose 2.3 points to 1,433.80.
- The EUR/USD was higher at 1.3024.
- Spanish 10-year government bond yields fell to 5.405 percent.
- Italian 10-year government bond yields fell to 4.68 percent.
- Gold rose 0.3 percent to $1,714.70 per ounce.
Asian shares were higher in overnight trade ahead of the FOMC despite the North Korean rocket and satellite launch. The Japanese Nikkei Index rose 0.59 percent while the Shanghai Composite Index gained 0.39 percent and the Hang Seng Index rose 0.8 percent. In addition, the Korean Kospi rose 0.55 percent and Australian shares gained 0.17 percent.
European shares were mostly higher in early trade, rising on hopes of further easing from the FOMC and tighter spreads of peripheral bonds. The Spanish Ibex Index rose 0.38 percent and the Italian MIB Index gained 0.25 percent. Meanwhile, the German DAX rallied 0.22 percent and the French CAC fell 0.12 percent while U.K. shares rose 0.23 percent.
Commodities were higher ahead of the FOMC decision and also on general risk-on sentiment in markets. WTI Crude futures rose 0.43 percent to $86.16 per barrel and Brent Crude futures rose 0.58 percent to $108.64 per barrel. Copper futures gained 0.49 percent to $370.45 on hopes that the Aussie dollar would weaken, boosting Australian exports of Dr. Copper. Gold was higher and silver futures rose 0.48 percent to $33.18 per ounce.
Currency markets were in clear risk-on mode as investors sold the dollar and the yen and bought riskier currencies. The EUR/USD was higher at 1.3024 and the dollar rose against the yen to 82.85, the highest since April. Overall, the Dollar Index fell 0.09 percent with notable weakness seen against the euro, the Swiss franc and the Swedish krone. The AUD/USD was also higher despite the Goldman call, rising 0.11 percent to 1.0540. One of the biggest movers was the EUR/JPY, which gained 0.56 percent to 107.92.
Stocks moving in the pre-market included:
- Apple (NASDAQ: AAPL) shares rose 0.85 percent pre-market as the company is reportedly testing different models of an Apple TV, signaling that the product could come to market in the near future.
- E. I. Du Pont De Nemours (NYSE: DD) shares rose 2.52 percent pre-market as the company announced a new share buyback of $1 billion, or about 2.5 percent of the company's market cap.
- Berkshire Hathaway (NYSE: BRK-B) shares rose 0.3 percent pre-market following positive comments from a Seeking Alpha post.
- Bank of America (NYSE: BAC) shares rose 0.48 percent pre-market ahead of the expected FOMC easing.
Notable companies expected to report earnings Wednesday include:
- Costco Wholesale (NASDAQ: COST) is expected to report first quarter EPS of $0.93 vs. $0.80 a year ago.
- Joy Global (NYSE: JOY) is expected to report fourth quarter EPS of $1.91 vs. $1.83 a year ago.
On the economics calendar Wednesday, MBA Purchase Applications are due out and import and export prices will shed further light on Tuesday's trade data. However, all eyes will be on the FOMC decision released at 2:30 pm and the ensuing updated economic forecasts and press conference. Many economists are calling for the Fed to roll the purchases of the ending Operation Twist into QE3, thus increasing the size of the latter program. In addition, economists have been speculating that the Fed will abandon its target date guidance and adopt an indicator-based methodology, setting policy goals to line up with improvement in key economic indicators such as the unemployment rate.
Good luck and good trading.
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