Market Overview

Stocks are Choppy as Wall Street Chews Over Global Interest Rate Gap

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Stocks are mixed but look to build on mild gains after Tuesday’s broad-market push landed the S&P 500 (SPX) above the closely watched 2100 line for the first time in a month (figure 1). Short-term Treasury yields are trading at 5 ½-year highs.

The week’s heavy line-up of data and clues on potential interest rate policy change here and abroad continues. Many observers expect another round of stimulus measures to emerge from the European Central Bank’s Thursday meeting, while Fed speeches and reports out today are expected to do little to knock Wall Street from its expectation for a potential December rate hike for the U.S.

In a speech early Wednesday, Atlanta Fed President Dennis Lockhart said the case for a December increase in interest rates is "compelling,” according to financial press covering the speech. Lockhart said he thinks the economy will sustain a moderate pace of growth in coming quarters. He said the U.S. central bank's condition for a rate hike of further improvement in the labor market has been met. The Atlanta Fed president also said that factors holding down inflation are "transitory,” according to the news reports.

Fed chief Janet Yellen speaks twice Wednesday, including a midday speech dedicated to the economy. Her early morning welcoming remarks did not spark much market response. The Fed’s Beige Book report gathering anecdotal economic notations from around the country will be issued this afternoon.

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December Hike on the Table? Consumer spending, the pace of hiring, and any potential sign of bubbling inflation are key areas under watch at the Federal Reserve, which meets in two weeks. Short-term Fed funds futures market traders have priced in a 78% chance that the Fed activates the first interest rate hike since 2006 when it wraps a two-day session on December 16. That’s according to pricing calculations provided on the CME Group’s FedWatch Tool.

Bullish Sign? Employers added 217,000 jobs in November, Automatic Data Processing said. ADP revised October’s gain up to 196,000 from a prior estimate of 182,000. Wall Street economists sometimes use ADP’s data to tweak their estimates for the closely followed Labor Department’s employment report, which will be released Friday. Economists polled by MarketWatch expect the government’s report to show that nonfarm payroll rose by 195,000 jobs last month, down from the huge gain of 271,000 in October.

Yahoo is an Early Mover. Yahoo’s (NASDAQ: YHOO) board plans to weigh a potential sale of the company’s core business during a series of meetings beginning Wednesday and continuing through Friday, people familiar with the matter told The Wall Street Journal. The board is expected to discuss whether to proceed with a plan to spin off more than $30 billion in shares of Alibaba Holding Group (NYSE: BABA) find a buyer for Yahoo’s core business of Web properties, or both, the people said, according to the WSJ article.

 

 

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